Decided on January 28,1994



S. Bandyopadhyay, Accountant Member - (1.) THIS departmental appeal is directed against the appellate order passed by the CIT(A), Belgaum, dated 19-3-1987 in which he cancelled the re-assessment order passed by the ITO under Section 143(3)/147(b) dated 9-11-1978. The CIT(A) has discussed in his impugned order that the earlier appellate order in this regard dated 19-2-1979 was set aside by the Tribunal for the purpose of considering the validity of the reopening of the assessment under Section 147(b) of the Act in the light of the judgment of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996.
(2.) Original assessment in this case is stated to have been completed on 20-1-1976. Later on, reassessment was made on 9-11-1978 after issue of notice under Section 148 read with Section 147(b) on 18-3-1977. Neither the assessment records nor the original assessment order, nor even a copy of the reasons recorded by the ITO for reopening the impugned assessment could be filed before us by either of the sides on the ground of non-availability of relevant records due to misplacement of the same. It, however, appears from a perusal of the impugned order of the CIT(A) that the reopening was based on a mistake pointed out by the Audit Party. It appears that the Audit Party had advised the ITO to disallow the interest paid on account of debit balances of the partners' accounts. The CIT(A) furthermore mentions that even in the reasons recorded by him, the ITO stated that in consequence of information received from "audit", he had reason to believe that income chargeable to tax had escaped assessment. The CIT(A) also quoted the observations of the Audit as below : A Review of the partner's accounts enclosed to the Returns for assessment years 1972-73 and 1973-74 has revealed that all the partners have been having continuous and huge debit balances in their accounts. The P and L account of the firm discloses that huge amounts are being paid as interest year after year and as no interest has been received from partners for their over drawals from the firm, it is clear that the interest payments made are not expended wholly and exclusively for the purpose of business and accordingly is to be disallowed. It was contended before the CIT(A) that in view of the detailed discussions made by the Supreme Court in its judgment in Indian & Eastern Newspaper Society's case (supra), the Audit Report could not be considered as an "information" for the purpose of Section 147(b). The CIT(A) accepted this contention and considered the reopening of the assessment to be invalid and in that view, cancelled the reassessment.
(3.) BEFORE us, the learned Departmental Representative first of all placed reliance on the decision of the Supreme Court in the case of R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537. In this particular judgment, the Supreme Court had held the Audit Department to be the proper machinery to scrutinise the assessments of the ITOs and point out the errors, if any, in law. The Supreme Court thus finally concluded that the intimation received by the ITO from the Audit Department constituted 'information' within the meaning of Section 147(b) in consequence of which the ITO could reopen the assessment. Be that as it may, it has however been found that the larger bench of the Supreme Court in its subsequent judgment in the case of Indian & Eastern Newspaper Society (supra) disapproved of the earlier judgment in the case of Kasturbhai Lalbhai (supra). The Supreme Court, held in that judgment that the opinion of the Audit Party on a point of law cannot be regarded as "information" within the meaning of Section 147(b) of the Act, for the purpose of reopening an assessment. The Court, however, stated that but although an audit party does not possess the power to pronounce on the law, it nevertheless can draw the attention of the ITO to it. The Supreme Court, finally, concluded that though the audit party was not a proper authority to interpret law, at the same time however, it could bring to the notice of the ITO the fact of omission to take into consideration any particular provision of existing law. The Supreme Court thus held that that part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes "information" within the meaning of Section 147(b).;

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