1975 Supreme(SC) 522

SUPREME COURT OF INDIA
K.K. MATHEW AND S. MURTAZA FAZL ALI JJ.
Kalyanji Mavji and Co., Appellant
Versus
Commissioner of Income tax. W.B.-II, Respondent.
Civil Appeal No. 522 of 1971
Decided on 10-12-1975,
Advocates appeared
M/s. S. R Banerjee, N. H. Goswamy, and Arvind Minocha. .Advocates, for Appellant; M/s. B. B. Ahuja and S. P. Nayar: Advocates, for Respondent.

Headnote:

Income-tax Act. 1922 – Sections 34,34(1),34(1)(b) – Claim of Deduction - Registered partnership firm dealing in various commercial activities - Said firm filed its return for year 1956-57 corresponding to accounting Gujarati Diwali year 2001 showing a total- income of after claiming a deduction of a sum of being amount of interest paid by assessee on debts incurred for partnership business - Income-tax Officer accepted return but on appeal to Appellate Assistant Commissioner assessment was reduced by a sum of by his order - For assessment year 1957-58 assessee showed same income and deduction claimed was allowed - Next year 1958-59 – however presented quite a different complexion - While assessee filed his return in year 1958-59 Income-tax Officer concerned suspected correctness of return particularly deduction of interest and found that as amount of deduction claimed was utilised for giving interest-free loans to partners for clearing up their income-tax dues it could not be said to be a loan incurred for expenses of partnership business and he accordingly disallowed deduction claimed by appellant - This discovery led the Income-tax officer to issue notice to appellant under Section 34 (1) (b) Income-tax Act, 1922 - hereinafter referred to as Act - for reopening assessment of the year 1956-57 - hereinafter to be referred to as original assessment on ground that deduction having been wrongly allowed taxable income had escaped assessment - After hearing appellant Income-tax officer completed assessment and included sum of to total income shown by assessee - Thereafter appellant filed an appeal before Appellate Assistant Commissioner against order of Income-tax officer but appeal was dismissed by Appellate authority which confirmed order of Income-tax officer - It may be pertinent to note here that in his order Appellate Assistant Commissioner pointed out that in assessment years 1958-59 and 1959-60 Income-tax Officer found that appellant had no evidence with him to show that funds borrowed on which interest was paid were utilised for purpose of the business and not diverted to partners - Whether to place information in instant case as based on materials already on record of original assessment of 1956-57 revealed by closer circumspection or to information derived from subsequent or fresh facts - Before - Whether on facts and in circumstances of case Tribunal was right in holding that re-assessment made by Income-tax Officer under Section 34(1)(b) of Indian Income-tax Act, 1922 was incompetent? - Whether it is open to Income-tax Officer to change his opinion subsequently 211 on the same materials and reopen the original assessment – Held, Court in s case it is now settled that "information in section 34(1)(b) included information as to true and correct state of law. and so would cover information as to relevant judicial decisions and that such information for purpose of Section 34(1)(b) of Income-tax Act need not be confined only to cases where Income-tax Officer discovers as a fact that income has escaped assessment - Court might mention that it was submitted by that in fact the amount sought to be deducted was paid towards income-tax liability of partners and this was done to protect business itself and to improve the credit of partners. Even this specific plea does not appear to have been taken before Income-tax Officer – Courts are however not concerned with particular plea because we are given to understand by counsel for appellant orders for years 1958-59 and 1959-60 are pending before Income tax authorities - In these circumstances we are clearly of the opinion that facts of present case clearly fall within tests and principles laid down by this Court in A. Raman and Company s case. inasmuch as Income-tax Officer proceeded on the basis of the information which came to him after original assessment by fresh facts revealed in assessment for year 1958-59 and consisted of conduct of appellant itself in not adducing any evidence to support its plea – Court are therefore unable to agree with view of Tribunal that this was a case of a mere change of opinion by Income-tax Officer on materials which were already on record - Appeal dismissed