T.K. Basu, J. - (1.) In this application the petitioner Union Carbide India Ltd. challenges two notices both dated the 11th March, 1976 under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for the assessment years 1971-72 and 1972-73. In spite of request the Income Tax Officer concerned did not furnish the recorded reasons in support of the aforesaid two notices. However on the 8th March, 1977 the petitioner received a draft order under Section 144B(1) of the Act for the assessment years 1971-72. The draft order which starts at page 111 of the annexures contains the following statement in justification of the proposed reopening of the assessment for that year:- "Subsequent to the original assessment. I have received information through revenue audit objections that the 'Chemex' Unit relating to chemicals cannot be considered as a new industrial undertaking but is only an extension of the earlier 'Chemco' Unit. Revenue Audit has further pointed out that since the 'Chemco' unit and 'Chemex' Unit are engaged in a priority industry, the sum total of the profit or loss of the two units together should be considered and as the latter unit had incurred loss in earlier years which would wipe out the profits of the two units together for the relevant year, deduction under Section 80(1) would not be admissible in respect of these two units ..................... In view of the foregoing, as I had reason to believe that assessee's income chargeable to tax had escaped assessment within the meaning of Section 147(b), a notice under Section 148 dated 11.3.76 was served on the assesses on 12.3.76."
(2.) Dr. Pal appearing on behalf of the petitioner contends that it is clear from the draft order and I may mention at this stage that the recorded reasons which by consent of parties have been tendered and formed part of the records of this case contain substantially the same reasons that the Income Tax Officer proposed to reopen the assessment on the basis of the opinion of the audit department of the revenue on a question of law. This argument was made on the basis that in the draft order and the recorded reasons it is clearly stated that the exemption under Section 80(1) of the Act was wrongly quoted.
(3.) In support of this contention Dr. Pal strongly relies on a recent decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. Commissioner of Income Tax, New Delhi, reported in 119 ITR 996. In that case the question whether an internal audit report by an infernal audit party of the Income Tax Department could be regarded as an 'information' within the meaning of Section 147(b) of the Act. After a careful consideration of the entire matter and after referring to two earlier decisions of the Supreme Court itself, in the case of Kayanji Mavji & Co. (1976) 102 ITR 287 and R. K. Malhotra ITO v. Kasturbhai Lalbhai, 109 ITR 537 the three judgments of the Supreme Court came to the conclusion that such information from an audit report it is confined to a pure question of fact would be an opinion within the meaning of Section 147(b) of the Act. With regard to the question of law, the Supreme Court appears to have held that the audit party can communicate such law to the Income Tax Officer, but its function may and there. In other words, after receipt of that communication as to the state of the law as it were, the Income Tax Officer has to, after applying his mind, come to its opinion as to the position of the law. To quote one passage from the judgment, which is to be found at page 1004 of the report "in every case the ITO must determine for himself what is the effect and conclusion of the law mentioned in the audit note and whether in consequence of the law which has now to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the I.T.O.";