M.M.KUMAR, J. - (1.) AT the instance of the Revenue the Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh ('the Tribunal') has referred the following question of law for determination of this Court by exercising jurisdiction under s. 256(1) of the IT in respect of asst. yr. 1981 -82 : "Whether on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the reassessment proceedings initiated in the case of the assessee in relation to assessment year under reference, are ab initio void -
(2.) BRIEF facts of the case are that the assessee firm is engaged in the business of purchase and sale of gold, silver and Pawan Kumar Jain took over the business and assets on book value. For the asst. yr. 1981 -82, the assessment of the concern came into existence. The closing stock of the assessee firm on the dissolution was valued at cost price of Rs. 4,92,347. The AO, however, found that it should have been valued at market price, which was Rs. 10,80,390. The difference of income was added to the income of the assessee and since it has escaped assessment within the meaning of s. 147(b) r/w s. 148 of the Act. The AO reframed the assessment by initiating proceedings under s. 147 of the Act and showing total income at Rs. 15,088. It was pleaded in response to the notice that neither the Partnership Act, 1932 nor the Act provides as to how closing stock has to be dealt with. However, reliance was placed on s. 46 of the Partnership Act, 1932.
(3.) ON appeal before the CIT(A), the order passed by the AO was upheld by holding that the closing stock of the assessee firm as on the date of dissolution was required to be valued at market rate and not on the basis of the costs shown in the assessee's books of account. On further appeal, the Tribunal held that the assessment could not be reopened merely upon the advise of the audit party because it would amount to change in opinion. The view of the Tribunal is discernible from the following observation : frankly admitted that the case regarding valuation of closing stock of a partnership firm in the event of dissolution was referred to the Ministry of Law and it was opined by the Ministry that neither the Partnership Act nor the IT Act, 1961 contains the specific provisions as to how closing stock has to be dealt with. This clearly shows a change of opinion from completed the impugned assessment. Such change of opinion cannot justify the reassessment proceedings. It is also well -settled now that the ITO cannot merely act upon the advice of audit party and he has to in consequence of information in his possession come to a judicial finding that income chargeable to tax has escaped assessment despite the fact that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Taking into consideration the documents filed before us including the dissolution deed of partnership and the orders of the authorities below, we are of the opinion that the reassessment proceedings are void ab initio. These are cancelled. Status quo ante restored." After hearing learned counsel at some length, we find that the matter is no longer res integra. The question has been considered by the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC), wherein following observations have been made : "The opinion of an internal audit party of the IT Department on a point of law cannot be regarded as 'information' within the meaning of s. 147(b) of the IT Act, 1961, for the purpose of reopening an assessment. But although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is onething, and its communication another. If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often results in applying s. 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose. 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 s. 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come 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. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO.";