Waldies Ltd. Vs. Income-tax Officer and ors. - Court Judgment

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			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
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			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
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			'decidedon' => '2000-07-13',
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
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			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
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			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
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			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
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		'appellant' => 'Waldies Ltd.',
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		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
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		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
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			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
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			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
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			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
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			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
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		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
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		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
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			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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Amitava Lala, J.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
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		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
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		'circuit' => null
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
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		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
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		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
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		'circuit' => null
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
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$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'respondent' => 'income-tax Officer and ors.',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
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		'circuit' => null
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
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		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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(9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
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			'favorof' => null,
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
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13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
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			'favorof' => null,
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
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		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
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		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
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		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'respondent' => 'income-tax Officer and ors.',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
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		'circuit' => null
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
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		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
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		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'respondent' => 'income-tax Officer and ors.',
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	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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Issue notice under Section 148.'

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
	'desc' => array(
		'Judgement' => array(
			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
		(int) 1 => 'waldies-ltd-vs-income-tax-officer-ors'
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
			'observations' => null,
			'overruledby' => null,
			'prhistory' => '',
			'pubs' => '[2000]246ITR29(Cal)',
			'ratiodecidendi' => '',
			'respondent' => 'income-tax Officer and ors.',
			'sub' => 'Direct Taxation',
			'link' => null,
			'circuit' => null
		)
	),
	'casename_url' => 'waldies-ltd-vs-income-tax-officer-ors',
	'args' => array(
		(int) 0 => '878211',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
$desc = array(
	'Judgement' => array(
		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
		'findings' => null,
		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
		'overruledby' => null,
		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
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22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.

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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
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			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
		'observations' => null,
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		'prhistory' => '',
		'pubs' => '[2000]246ITR29(Cal)',
		'ratiodecidendi' => '',
		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
		'link' => null,
		'circuit' => null
	)
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$url = 'https://sooperkanoon.com/case/amp/878211/waldies-ltd-vs-income-tax-officer-ors'
$ctype = ' High Court'
$caseref = 'Kantamani Venkata Narayana and Sons v. First Addl.<br>'
$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
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23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.

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	'title_for_layout' => 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | ',
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			'id' => '878211',
			'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
			'appealno' => 'C.R. No. 2880(W) of 1979',
			'appellant' => 'Waldies Ltd.',
			'authreffered' => '',
			'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
			'casenote' => ' - ',
			'caseanalysis' => null,
			'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
			'citingcases' => '',
			'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
			'counseldef' => 'R.P. Prasad, Adv.',
			'court' => 'Kolkata',
			'court_type' => 'HC',
			'decidedon' => '2000-07-13',
			'deposition' => '',
			'favorof' => null,
			'findings' => null,
			'judge' => 'Amitava Lala, J.',
			'judgement' => '<p style="text-align: justify;">Amitava Lala, J.</p><p style="text-align: justify;">1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p style="text-align: justify;">'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p style="text-align: justify;">Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p style="text-align: justify;">2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p style="text-align: justify;">3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p style="text-align: justify;">4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p style="text-align: justify;">'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p style="text-align: justify;">(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p style="text-align: justify;">(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p style="text-align: justify;">5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p style="text-align: justify;">6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p style="text-align: justify;">'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p style="text-align: justify;">(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p style="text-align: justify;">(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p style="text-align: justify;">(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p style="text-align: justify;"> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p style="text-align: justify;">7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p style="text-align: justify;">8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p style="text-align: justify;">9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p style="text-align: justify;">10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p style="text-align: justify;">11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p style="text-align: justify;">12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p style="text-align: justify;">13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p style="text-align: justify;">14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p style="text-align: justify;">15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p style="text-align: justify;">16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p style="text-align: justify;">17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p style="text-align: justify;">'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p style="text-align: justify;">Issue notice under Section 148.'</p><p style="text-align: justify;">18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p style="text-align: justify;">19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p style="text-align: justify;">20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p style="text-align: justify;">21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p style="text-align: justify;">22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p style="text-align: justify;">23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p style="text-align: justify;"></p><p style="text-align: justify;">',
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			'respondent' => 'income-tax Officer and ors.',
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$title_for_layout = 'Waldies Ltd Vs Income Tax Officer and ors - Citation 878211 - Court Judgment | '
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		'id' => '878211',
		'acts' => '<a href="/act/51330/income-tax-act-1961-complete-act">Income Tax Act, 1961</a> - Section 147',
		'appealno' => 'C.R. No. 2880(W) of 1979',
		'appellant' => 'Waldies Ltd.',
		'authreffered' => '',
		'casename' => 'Waldies Ltd. Vs. Income-tax Officer and ors.',
		'casenote' => ' - ',
		'caseanalysis' => null,
		'casesref' => 'Kantamani Venkata Narayana and Sons v. First Addl.;',
		'citingcases' => '',
		'counselplain' => 'Debi Prasad Pal and ;Manisha Seal, Advs.',
		'counseldef' => 'R.P. Prasad, Adv.',
		'court' => 'Kolkata',
		'court_type' => 'HC',
		'decidedon' => '2000-07-13',
		'deposition' => '',
		'favorof' => null,
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		'judge' => 'Amitava Lala, J.',
		'judgement' => '<p>Amitava Lala, J.</p><p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :</p><p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :</p><p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'</p><p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.</p><p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.</p><p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :</p><p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).</p><p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.</p><p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'</p><p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.</p><p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :</p><p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :</p><p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.</p><p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.</p><p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.</p><p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'</p><p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.</p><p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.</p><p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).</p><p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.</p><p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.</p><p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.</p><p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.</p><p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.</p><p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.</p><p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.</p><p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :</p><p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).</p><p>Issue notice under Section 148.'</p><p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.</p><p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.</p><p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.</p><p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.</p><p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.</p><p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p></p><p>',
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		'pubs' => '[2000]246ITR29(Cal)',
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		'respondent' => 'income-tax Officer and ors.',
		'sub' => 'Direct Taxation',
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		'circuit' => null
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$content = array(
	(int) 0 => '<p>Amitava Lala, J.',
	(int) 1 => '<p>1. This is an application in the nature of a writ petition challenging' the order of reassessment under Section 147 of the Income-tax Act, 1961, prior to the coming into force of the latest amendment of this Act. The provisions of Section 147 of the said Act are as follows :',
	(int) 2 => '<p>'147. Income escaping assessment--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :',
	(int) 3 => '<p>Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'',
	(int) 4 => '<p>2. Under Section 148(2) of the said Act, the Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. This part of the aforesaid section is making room for the purpose of the applicability of Section 147 as aforesaid on account of issue of notice where income has escaped assessment.',
	(int) 5 => '<p>3. The petitioner has made out a case that neither there is a reason of omission or failure on the part of the assessee to make a return for the relevant assessment year to the Income-tax Officer nor income chargeable to tax has escaped assessment for that year.',
	(int) 6 => '<p>4. The respondents have made out their case in paragraphs 6(a), (b) and paragraph 9 of the affidaviMn-opposition which are as follows :',
	(int) 7 => '<p>'(a) The proceedings in the case of Waldies Ltd., for the year 1973-74 was reopened on the basis of the audit objection that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration. The conclusion was arrived at by the Revenue audit by comparing the figures with that of the period prior to the date on which the latter company ceased to be the secretaries and treasurers of the assessee-company in which they had substantial interest in the shape of 36 per cent. of its share capital. The assessment was accordingly reopened under Section 147(b).',
	(int) 8 => '<p>(b) Since the services rendered by the company before 1970 were the same as were being rendered in the year under consideration, viz., 1973-74, and because there is no justification for the increase in the rates of payment it was considered that the excess payments on account of commission and rent were made for extra commercial consideration as this company was holding 36 per cent. of the shares of the assessee-company. The petitioner raised its objections to the reopening and also claimed that the payments are made in the course of normal business transactions and commercial consideration. The claims were rejected and the draft assessment order under Section 144B was sent to the assessee.',
	(int) 9 => '<p>(9) With reference to the statements made in paragraph 8 of the said petition I say that the reassessment proceedings were initiated on receipt of information from the Revenue Audit Department that the steep increase in payment of commission on sales to Gillanders Arbuthnot and Co. Ltd. under selling agency agreement, with effect from January 1, 1970, was allowed on extra commercial consideration as this company had substantial interest in the petitioner-company by holding 36 per cent. of its shares. The information based on which the proceedings were initiated under Section 147(b) was received from the Revenue audit. The increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers. The same position applies to the information about payment of rent payable by the petitioner to Gillanders Arbuthnot and Co. Ltd. and the information received from the Revenue audit is information within the meaning of Section 147 for initiating proceedings under Section 147(b).'',
	(int) 10 => '<p>5. Therefore, it is crystal clear from such affidavit-in-opposition that the case of the year 1973-74 was reopened on the basis of the audit objection.',
	(int) 11 => '<p>6. In reply thereto, the petitioner has made out the following statements in their affidavit-in-reply :',
	(int) 12 => '<p>'(7) With reference to the allegations contained in paragraph 6 of the said affidavit and sub-paragraphs (a) and (b) thereof, I say as follows :',
	(int) 13 => '<p>(a) In the course of the original assessment proceeding, the petitioner duly disclosed all primary facts including the fact of share holding by Gillanders Arbuthnot and Co. Ltd. of the petitioner-company as also the agreements which the petitioner-company entered into with the said Gillanders Arbuthnot and Co. Ltd. under which selling commission, rent and guarantee commission were paid by the petitioner-company to the said Gillanders Arbuthnot and Co. Ltd. The aforesaid facts will also appear from the letter dated July 16, 1975, being annexure 'A' to the writ petition.',
	(int) 14 => '<p>(b) In the course of the assessment proceeding, the authorised representative of the petitioner-company also had full discussions with the Income-tax Officer concerned who made the original assessment for the assessment year 1973-74, viz., Shri C. P. Roy. After considering all the facts and the agreements the said Income-tax Officer allowed the claim made by the petitioner-company on account of selling commission, rent and guarantee commission paid by the petitioner-company to Gillanders Arbuthnot and Co. Ltd.',
	(int) 15 => '<p>(c) I say that whether the selling commission, rent and guarantee commission were paid by the petitioner-company for extra commercial consideration is a mixed question of law and fact and the petitioner duly disclosed all the primary facts as will be evident from the writ petition and the enclosures thereto including the assessment order. As a matter of fact, the Revenue audit got all the primary facts from the records. I say that the Revenue audit on a consideration of the said facts which the assessing Income-tax Officer considered at the time of the original assessment is now drawing a different conclusion in law and holding a different view from the assessing Income-tax Officer. Save as above and save what appears from the records of the case, I deny ea'ch and every allegation made in paragraph 6(a) and (b) of the said affidavit. I deny in particular that Gillanders Arbuthnot and Co. Ltd. was paid selling commission, rent and guarantee commission for extra commercial consideration as alleged or at all. In particular, I deny any dispute that since the services rendered by the latter company being Gillanders Arbuthnot and Co. Ltd., before 1970 was the same as what was being rendered in the year under consideration, viz., 1973-74, and because there was no justification in the increase in the rates of payment it was considered that the excess payment was for extra commercial consideration as the latter company was holding 36 per cent. of the shares of the assessee-petitioner-company as alleged or at all. I deny further that there was any excess payment by the petitioner-company to the latter company for the services rendered or for the rent or on account of commission as alleged or at all. It is significant to note here that the deponent has himself admitted that the alleged decision of excess payment for extra commercial consideration was taken and/or the said conclusion was arrived at by the Revenue audit and not by the assessing Income-tax Officer.',
	(int) 16 => '<p> (9) With reference to paragraphs 8 and 9 of the said affidavit, I repeat and reiterate the statements made in paragraphs 5, 6, 7 and 8 of the petition as also the statements made in paragraph 7 of the affidavit-in-reply and deny all allegations which are contrary thereto and/or inconsistent therewith. I deny in particular the information on the basis of which the proceedings were initiated under Section 147(b) of the Act can be validly received from the Revenue audit as alleged or at all. I say that what the Revenue audit had communicated to respondent No. 1 cannot be construed as information within the meaning of Section 147(b) of the Act. I deny further that the increase in the rate of commission was found to have no bearing on the extent of services rendered by the company acting as selling agent who were acting previously as secretaries and treasurers as alleged or that the same position applies to the information about payment of rent payable by the petitioner to the said company being Gillan-ders Arbuthnot and Co. Ltd., as alleged or at all. I deny also that the information received from the Revenue audit is information within the meaning of Section 147 of the Act for initiating proceedings under Section 147(b) of the Act as alleged or at all. In this connection, I crave leave to refer to the statement made in paragraph 7 of this affidavit-in-reply. I say that the action of respondent No. 1 in the instant case would amount to a mere change of opinion. I further say that the Revenue audit has no authority to conclude upon law.'',
	(int) 17 => '<p>7. Therefore, the case of the petitioner is that the communication of the Revenue audit of the authority concerned cannot be construed as information within the meaning of Section 147(b) of the Act but an opinion.',
	(int) 18 => '<p>8. In support of their contentions, the petitioner relied upon a well appreciated three-judge Bench judgment of the Supreme Court of India as reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it has categorically held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under Section 147(b) of the said Act.',
	(int) 19 => '<p>9. At the time of consideration, it was observed by the Supreme Court of India that in the cpurse of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating the contents of the audit report as 'information', the Income-tax Officer initiated reassessment proceedings for those four years under Section 147(b).',
	(int) 20 => '<p>10. Recently, the Supreme Court of India in a judgment reported in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , held that the contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. It was held by the Supreme Court of India that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Income-tax Act. The audit party has merely pointed out a fact which has been overlooked by the. Income-tax Officer, in the assessment. This is not a case of information on a question of law. A dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by the larger Bench of this court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.',
	(int) 21 => '<p>11. Therefore, it has to be understood under the proper perspective thereunder as to under what circumstances the judgment was delivered. The factual basis is that the case relates to the assessment year 1974-75 and 1975-76. The relevant accounting year ended on March 31, 1974, and March 31, 1975, respectively. Originally, the assessment was completed on June 21, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal after considering all the aspects of the cases remanded the cases back to the Income-tax Officer for passing a fresh order in accordance with law. One of the points raised before the Income-tax Officer was that of justification for reopening of the assessment. It was pointed out that reopening has been done on the basis of the report made by the audit department. The contention which found favour with the Tribunal was that reopening under Section 147(b) is not permissible on the basis of the report given by the audit department. This view was also taken by the High Court. The factual consideration was made by the Supreme Court of India by saying that the reopening was done because in the original assessment donations made to a body trust was held by the Income-tax Officer to be eligible for deduction under Section 80G. But subsequently it was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on September 22, 1972, that means it had expired before April 1, 1973. Therefore, in the relevant years of account this trust was not a recognised charitable trust. In view of such matter, the donation to such trust did not qualify for deduction under Section 80G as a donation made to a recognised charity.',
	(int) 22 => '<p>12. Therefore, such case, as I found, because of non-availability of the factual basis on which the order is passed, truly it is coming under the four corners of the Act and the income escaped from the assessment in its true concept. But the present position of the case is different from the other aspects.',
	(int) 23 => '<p>13. Here the selling agents commission, as is given, was the subject-matter which were available on the basis of the letter dated July 16, 1975, for the purpose of relevant assessment year 1973-74 and on the basis of such commission, as given, the income-tax authority has drawn an inference to the extent that to reopen the case it has reviewed subsequently in view of Section 147(b) and it can be construed as income escaped or there is any omission or failure on the part of the assessee to make a return.',
	(int) 24 => '<p>14. However, in view of the judgment reported in J. K. Woollen Manufacturers v. CIT : [1969]72ITR612(SC) , which is relevant for the purpose of commission clearly prescribes that the question as to whether any commission claimed as expenditure was laid out or expended wholly or exclusively for the purpose of such business, profession or vocation as required under the prescribed section of the Act has to be decided on the facts and in the light of the circumstances in the particular case. But it has been observed by the Supreme Court of India, the final conclusion on the admissibility of an allowance is one of law.',
	(int) 25 => '<p>15. Dr. Pal, learned senior counsel appearing for the petitioner, has contended before this court that the facts were there before the appropriate authority. It is not the case that there is any omission or failure but final inference has been drawn on the basis of the audit report that the income escaped which is nothing but a final conclusion one of law. Under such circumstances, it cannot be said that the same can be reopened as alleged or at all.',
	(int) 26 => '<p>16. Mr. Prasad, learned counsel appearing on behalf of the respondent authorities, contended before this court that the reasons are internal but when notice is to be given there must be reason to believe that income escaped from notice. He cited three judgments. Firstly, he cited a judgment reported in CIT v. A. Raman and Co. : [1968]67ITR11(SC) saying that for a commencement of the proceedings for reassessment, all the materials which came to the notice of the Income-tax Officer, are not necessary but the previous order of assessment is vitiated by some error of fact or law.',
	(int) 27 => '<p>17. He further submitted on the basis of S. Narayanappa v. CIT : [1967]63ITR219(SC) if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under the appropriate section. Whether these grounds are adequate or not is not a matter for the court to investigate. He has also relied upon further judgment reported in same volume page No. 638 in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) to substantiate that one has to bring to the notice of the Income-tax Officer particular items in the books of account or provisions or portions of documents which are relevant. Even if it be assumed that, from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. Now, let me analyse the position. It is crystal clear from the factual aspect that there is no omission or failure on the part of the petitioner. Now it is required to be found out by the authority concerned whether the tax escaped assessment from notice for the assessment year or not. Therefore, there should be a basis of the same. The basis cannot be formal or mechanical but substantial because by virtue of the earlier order of assessment, the assessee accrued certain rights. Therefore, reopening of the same without reasons might create an interference into the protected right of an assessee under Articles 19 and 301 of the Constitution of India. From the hand written notice dated March 29, 1978, photo copy of which is placed before the court by learned counsel on behalf of the respondent authority it appears as follows :',
	(int) 28 => '<p>'I have reason to believe that income escaped assessment as the rent and commission paid to Gillanders Arbuthnot and Co. Ltd. on account of bank guarantee and as selling agents was allowed in excess in computing the income in the year. Interest on N. P. certificates also escaped assessment. Assessment is required, under Section 147(b).',
	(int) 29 => '<p>Issue notice under Section 148.'',
	(int) 30 => '<p>18. The bare statement as above cannot be held to be reason or reasons. It should be descriptive on what way it is escaped from the notice specially when it is an admitted position that there is no omission or failure on the part of the assessee. Even there is no change of legal position as available in CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) , Therefore, either it is not a reason to believe but a reason to suspect or it is not an information but opinion of the internal audit party, therefore, in both ways the notice is not tenable in law. So far as the last part is concerned it is crystal clear from the affidavit of the authority that conclusion was arrived at by the Revenue audit, therefore, the same is an opinion which cannot be the basis for reopening of assessment as per the ratio of the judgment reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . So far as the word 'suspect' is concerned, the same ought to stand on a fact of omission or failure on the part of the assessee which is also not the case of the authority, therefore, there is no reason even to suspect. Hence, there is no finding of service of notice at all.',
	(int) 31 => '<p>19. In addition to the above I would like to point out that the ratio of CIT v. P. V. S. Beedies Pvt. Ltd. : [1999]237ITR13(SC) is not factually applicable here. The said case was a case of remand by the Tribunal to the Income-tax Officer where such point was taken. Therefore, the same was not a closed chapter but continuance of a process. Moreover, by the change of law, the earlier assessment became bad in law from the face of it. On the contrary, in this case admittedly there is no case of omission or failure, no legal escapement, no motive, no suspect but a bare reason to believe on the basis of the conclusion of the internal audit which is barred by Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) being a larger Bench judgment of the Supreme Court of India wherein it was held that they cannot have any power to pronounce on the law.',
	(int) 32 => '<p>20. Further by another three-judge Bench judgment of the Supreme Court of India reported in J. K. Woollen . : [1967]65ITR381(SC) . Therefore, the conclusion of the internal audit in this respect is one of wrong legal opinion. Hence the same is also hit by the ratio of judgment of the three-judge Bench reported in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , either wrong or right but being legal opinion.',
	(int) 33 => '<p>21. Under those circumstances, this writ application is allowed on contest. Rule is made absolute. Interim order, if any, stands confirmed. However, no order is passed as to costs.',
	(int) 34 => '<p>22. Photocopy of the office note dated March 29, 1978, filed in the court be kept with the record of this case.',
	(int) 35 => '<p>23. Let urgent xerox certified copy of this order, if applied for, be given to the learned advocates for the parties within 14 days from the date of filing the requisites.<p>',
	(int) 36 => '<p>'
)
$paragraphAfter = (int) 1
$cnt = (int) 37
$i = (int) 36
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