(Appeal by Special Leave from the judgment and order, dated October 12, 1977 of the Andhra Pradesh High Court in Case Referred No-55 of 1976).

Income-tax----

----Reassessment---Condition precedent---Information from extraneous source---Bank changing method of accounting in respect of interest on securities on account of difficulties---Excess on sale of securities also claimed as capital receipt---Change accepted by I.T.O. and assessments made allowing claim---Assessments reopened---No information from extraneous source---Mere change of opinion--Reopening not valid---Indian Income Tax Act, 1961, S.147(b).

In the course of its. banking business, the appellant-bank purchased Government securities and sold them from time to time. Although interest was payable on the securities on specified dates, the appellant-bank adopted the method of calculating the interest which had accrued and paying/ receiving the interest on the date of and up to the date of purchase or sale.

This method was being accepted by

the Income-tax Officer until the assessment year 1958-59. From the assessment year 1959-60, the appellant- bank changed its method of returning income from transactions in securities. It attached a note to its return stating that by following the earlier method, it was experiencing several difficulties in the method of accounting. Under the changed method of accounting, the bank ignored the accrued amounts of interest paid or received relating to the broken periods. The appellant-bank also claimed that the excess amount received from the sale of securities was a capital receipt. Though he did not pass a specific order to that effect, the Income-tax Officer accepted this change in the method of accounting and made the assessment order. For the assessment years 1960-61 to 1962-63 also, the changed method of accounting was accepted and assessments made. However, in the course of the assessment proceedings relating to the assessment year 1963-64, the Income-tax Officer objected to this change and took the view that the excess realised from the transaction in securities constituted a revenue receipt. The Income-tax Officer reopened the assessments for the assessment years 1960-61 to 1962-63 under clause (b) of section 147 of the Income Tax Act, 1961. The appellant-bank appealed to the Appellate Assistant Commissioner but without success. On further appeal, the Tribunal, by a majority, held in favour of the appellant-bank. On a reference at the instance of the Department, the High Court held that the reopening of the assessments was valid. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that the Income-tax Officer had allowed the change in the method of accounting for the assessment years 1960-61, 1961-62 and 1963--64 knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once the change in the method of accounting had been knowingly allowed by the Income-tax Officer after taking into account all the relevant facts it was not permissible for the Income-tax Officer, or his successor, to reopen the assessment at a later point of time under section 147(b) of the Income-tax Act unless any information came from an.extraneous source. There was no information available with tire Income-tax Officer on the basis of which he could reopen the assessments. This was a case of mere change in opinion, and, therefore, the assessments had not been validly reopened under section 147(b) of the Income Tax Act, 1961.

Kalyanji Mavji & Co. v. C.I.T. (1976) 102 ITR 287 (SC) ref.

T.A. Ramachandran, Senior Advocate (Mrs. Janaki Ramachandran, Advocate with him) for Appellant.

K.N. Shukla, Senior Advocate (R. Satish and S. N. Terdol, Advocates with him) for Respondent.

JUDGMENT

These appeals are preferred against the judgment of the Andhra Pradesh High Court answering the following question in the affirmative that is in favour of the Revenue and against the assessee:

"Whether, on the facts and in the circumstances of the case, the assessments for the years 1960-61, 1961-62 and 1962-63 have been validly reopened under section 147(b) of the Income-tax Act, 1961?"

The appellant is the Andhra Bank Limited and the assessment years concerned are 1960-61 to 1962-63. The bank was following the calendar year as its accounting year, In the course of its banking business, it was purchasing Government securities and also selling them from time to time. On government promissory notes and securities, interest is payable on specified dates, but, all the same, the transferor or the transferee can calculate the interest which has accrued on such promissory notes and pay or receive such amount of interest on the date of and up to the date of purchase or sale. The assessee was also adopting this method and it was being accepted by the income-tax authorities until the assessment year 1958-59. However, with effect from the assessment year 1959-60, the assessee changed its method of returning income with respect to the transactions in securities. It attached a note to its return of income stating that by following the aforesaid method, the bank was experiencing several difficulties in the matter of accounting, and therefore, it is changing the method of accounting with effect from the accounting year relevant to the assessment year 1959-60. According to this changed method of accounting, it appears, the bank ignored the accrued amounts of interest paid or received relating to the broken periods. The bank further submitted that the excess amount received from the sale of securities was a capital receipt. Though he did not pass a specific order to that effect, the Income-tax Officer accepted this change in the method of accounting and made the assessment order: For the assessment years 1960-61 to 1962-6? also, the said changed method of accounting was accepted and assessments made. However, in the course of the assessment proceedings relating to the assessment year 1963-64, the Income-tax Officer objected to this change. He also took the view that the excess amount realised from the transactions in securities constituted a revenue receipt and 'not a capital receipt. He made the assessment accordingly. Further, he sought to reopen the assessment for the assessment years 1960-61 to 1962-63 under clause(b) of section ,147 of the Income-tax Act, 1961, and it is this controversy we are concerned with in these appeals. Against the reassessments made for the said three assessment years, the bank appealed to the Appellate Assistant Commissioner, but without success. On further appeal preferred by the assessee, there was a difference of opinion between the two members of the Tribunal. While the Judicial Member held that the reopening was valid and legal, the Accountant Member took the contrary view. The matter was referred to President of Tribunal, who agreed with the Accountant Member-with the Result that the assessee's appeals came to be allowed by the Tribunal. Thereupon, the Revenue asked for and obtained the aforesaid reference.

The High Court answered the question in favour of the Revenue purporting to follow and apply the Principles enunciated by this Court in Kalyanji Mavji v. C.I.T. (1976) 102 I.T.R. 287. We find ourselves unable to agree with the High Court.

The facts stated above clearly disclose that the Income-tax Officer allowed the change in the method of accounting for the assessment years concerned herein knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once it is found that the change in the method of accounting was knowingly allowed by the Income-tax Officer after taking into account all the relevant facts it is not permissible for the Income-tax Officer, or his successor, to reopen the assessment at a later point of time under section 147(b) of the Income-tax Act unless any information comes from an extraneous source. Further, we fail to see what is the "information" available to the Income-tax Officer in this case on the basis of which he is seeking to reopen the assessments under clause (b) of section 147. We find none. Indeed, this appears to be a case of mere change of opinion. The principles enunciated in Kalyanji Mavji's case (1976) 102 I.T.R. 287 cannot save the impugned action of the Income-tax Officer.

These appeals are accordingly allowed and the judgment of the High Court is set aside. The question referred is answered in the negative, i.e., in favour of the assessee and against the Revenue. No costs.

M.B.A./1451/FC Appeal allowed.