Income-tax---

---Re-assessment ---Information that income had escaped assessment-- Opinion of audit party does not constitute "information "---Audit party holding that commission paid to Managing Director by company was excessive---No material to show that Assessing Officer had not considered Ss.40(c) & 40A(5)---Re-assessment proceedings on the basis of audit objection not valid---Indian Income Tax Act, 1961, S. 147(b).

The opinion of an internal audit party of the Income-tax Department on a point of. law does not amount to "information' within the meaning of section 147(b) of the Income Tax Act, 1961.

Held, that, in the instant case, the information given to the Assessing Officer under the audit note pertained to the computation of the permissible deduction in respect of the remuneration paid to the Managing Director. According to the audit, the commission paid to the Managing Director was not allowable and, therefore, there had been an excess allowance in computing the income of the assessee. There was no material before the Assessing Officer who made the re-assessment to show that sections 409(c) and 40A(5) had not been' noticed by the Income-tax Officer when he made the original assessment. The re assessment was based solely on the audit party's remarks. It was not valid.

Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) applied.

C.V. Rajan for the Commissioner. P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

R. JAYASIMHA BABU, J.---At the instance of the Revenue the following question of law has been referred to us by the Tribunal for our decision:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the provisions of section 147(b) cannot be invoked in this case and accordingly in canceling the re-assessment made for the assessment year 1972-73?"

The re-assessment referred to in the question was made by the Income-tax Officer in August 20, 1977, while the original assessment had been completed on March 31, 1975. The Income-tax Officer justified the re-assessment on the ground that fresh information had been received from the audit party which required the re-assessment and, therefore, the reassessment was justified under section 147(b) of the Act. He also justified it on the ground that where a predecessor officer had committed a mistake and when that mistake is subsequently noticed by another, then it is open to the Department to set right the inadvertent mistake committed by the earlier officer by re-opening the assessment.

The information given to the Assessing Officer under the audit note pertained to the computation of the permissible deduction in respect of the remuneration paid to the Managing Director. According to the audit, the commission paid to the Managing Director, was not allowable and. therefore, there had been an excess allowance of Rs. 30,192 while computing the income of the assessee for the relevant year.

The Tribunal in appeal, set aside that order of the Income-tax Officer, and in our opinion rightly. The Tribunal relied upon the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, wherein the apex Court held that the opinion of an internal audit party of the Income-tax Department on a point of law does not amount to "information" within the meaning of section 147(b) of the Income Tax Act, 1961, and that such opinion on a question of law by the audit party would not permit the re-opening of the assessment.

Learned counsel for the Revenue, however, contended that, there is a distinction between the communication of law and the source of law, and that the audit party had only informed the Income-tax Officer of the relevant statutory provisions which are required to be applied, but had not been applied while making the original assessment.

It is not possible for us to accept this submission for the Revenue. The relevant provisions of law which had to be looked into at the time of assessment, in so fit as the amount to be allowed as a deduction while computing the remuneration paid to the Managing Director, is concerned, are sections 40(c) and 40A(5). There was no material before the Assessing Officer who made the re-assessment to show that these provisions had not been noticed by the Income-tax Officer when he made the original assessment. The law with regard to the applicability of these provisions regarding remuneration paid to the Managing Director who is also an employee as on the date of the order of assessment, was a matter for decision by the officer who made the original assessment; he having understood the same in a particular manner while the audit party chose to interpret those provisions in a different manner. This is an instance where the audit party's objections were based on its opinion and this is not a case of mere information being given to the concerned officer as to the existence of the law. In the order of re-assessment also, the re-assessment is not on the ground that the applicable legal provision has been omitted from consideration inadvertently by the Assessing Officer. The re-assessment is solely based on the audit party's remarks. These remarks contained the opinion of the audit party as to the proper interpretation of the statutory provisions. As pointed out by the apex Court, such opinion of the audit party is not "information" on the basis of which an order of re-assessment could be made under section 147(b) of the Act.

The Tribunal has rightly rejected the Revenue's stand that the re-assessment was in accordance with section 147(b) of the Act. We do not find any error in that order. The question referred to us is answered in the affirmative and against the Revenue. The assessee shall be entitled to costs in the sum of Rs.500 (Rupees five hundred only).

M.B.A./677/FC

Order accordingly.