Orissa High Court
Commissioner Of Income-Tax vs Orissa State Financial Corporation on 24 September, 1991
Equivalent citations: [1992]196ITR466(ORISSA)
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. On being moved by an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), this court had directed the Income-tax Appellate Tribunal, Cuttack Bench (in short "the Tribunal"), to refer the following questions for adjudication :
"(1) Whether the Income-tax Appellate Tribunal was right in holding that there was no evidence to show that the assessee had applied for change of the system of accounting from mercantile to cash in relation to interest from sticky loans in an account called 'Interest Suspense Account' and, therefore, it was not taxable ? and (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the audit objection bearing No. 1186, dated June 20, 1976, could not form the basis for reopening the assessment under Section 147(b) of the Income-tax Act, 1961 ?"
2. The reference has been occasioned in the following background.
3. The Orissa State Financial Corporation established under the State Financial Corporations Act, 1951 (hereinafter referred to as "the assessee"), was assessed to tax under the Act for the assessment years 1974-75, 1975-76 and 1976-77, on the same date, i.e., March 6, 1979. While the assessments for the first two years were made under Sections 147(b), 143(3) and 144B, for the last year it was under Sections 143(3) and 144B of the Act. Originally, assessments for the first two years were made on December 23, 1974, and March 11, 1977, respectively. Subsequently, the assessments were reopened under Section 147(b) of the Act for these years. The basis indicated for such reopening was that the assessee keeps its accounts on the mercantile basis and, therefore, interest receivable on the loans are taxable irrespective of whether the interest is credited to the "Interest account" or "Interest suspense account". Reliance was placed on the decision of the Kerala High Court in State Bank of Travancore v. CIT [1977] 110 ITR 336 for this view. Sequentially, draft assessment orders were forwarded to the Inspecting Assistant Commissioner under Section 144B(1) of the Act as the proposed addition in each year was more than Rs. 1 lakh. On approval by the Inspecting Assistant Commissioner concerned, Rs. 2,21,720 which was credited to the "Interest suspense account" was added to the income originally computed and assessment was made for the assessment year 1974-75, with which we are presently concerned. Additions were made for the assessment year 1975-76 in the reassessment and in the assessment under Section 143(3) for the assessment year 1976-77. Assessments for all the three assessment years were assailed before the Commissioner of Income-tax (Appeals), Orissa. Legality of the proceedings under Section 147(b) and the addition made in respect of amounts credited to the interest suspense account, so far as they are relevant to the concerned assessment years, were questioned. The Commissioner of Income-tax (Appeals) was of the view that reassessments completed under Section 147(b) for the assessment years 1974-75 and 1975-76 were not in accordance with law because the reopening of the assessment was on the basis of a revenue audit objection. He deleted the additions made in respect of amounts credited in the interest suspense account for all the years. The combined order of the Commissioner of Income-tax (Appeals) was assailed by the Revenue before the Tribunal which confirmed the view of the Commissioner of Income-tax (Appeals) so far as the non-sustainability of the assessment under Section 147(b) for the assessment year 1974-75 is concerned, but reversed the same for the assessment year 1975-76. So far as the legality of the addition of the amount credited to the interest suspense account is concerned, the Tribunal upheld the relief granted by the Commissioner of Income-tax (Appeals). The Revenue filed applications under Section 256(1) of the Act before the Tribunal seeking reference. The Tribunal refused to refer the questions as, according to it, the decision of the Tribunal was based on a decision of the apex court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 so far as the reopening aspect is concerned. It refused to refer the question regarding addition on the ground that the same was a question of fact.
4. On being moved, this court had directed the Tribunal to state a case and refer the questions as indicated above. So far as this reference is concerned, it relates to the assessment year 1974-75 and, therefore, the facts relevant for the said assessment year are to be considered. Learned counsel for the parties agreed that if it is held that the Tribunal was justified in holding that the reopening of assessment under Section 147(b) was not tenable in law, the answer to the other question would be an academic exercise. We shall, therefore, examine the sustainability of the Tribunal's view regarding validity of reopening of the assessment under Section 147(b) of the Act.
5. According to Mr. A. K. Roy, learned standing counsel for the Department, the communication to which reference was made by the Commissioner of Income-tax (Appeals) and the Tribunal related to the legal position and, based on the opinion of the Assessing Officer, reopening was done. It is submitted that in that background the decision in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has no application. Reliance of the Commissioner of Income-tax (Appeals) and the Tribunal on the said case to hold that the reopening was bad is not a correct conclusion in law.
6. Learned counsel for the assessee, however, submits that the said forums having concluded that there was non-application of mind by the Assessing Officer, and mechanically on the basis of the Revenue audit objections the reopening was done, being a finding of fact, there is no scope for interference in the present proceedings.
7. The expression "information" referred to in Section 147(b) means information as to law created by a formal source. It is law which, because it issues from a competent Legislature or a competent judicial or quasi-judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability. An audit party does not possess, the power to pronounce law. Nevertheless, it is not incompetent to draw the attention of an Income-tax Officer to the correct legal position. A distinction between source of law and communicator of law is to be maintained. While law is to 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 any one. No authority is required for the purpose. That part of the note of the audit party which mentions the law which has escaped the notice of the Income-tax Officer constitutes "information" within the meaning of Section 147(b), but the opinion embodied in the audit report in regard to the application or interpretation of law does not constitute "information" so far as the Income-tax Officer is concerned and cannot be taken into account for the purpose of reopening of assessment. It is for the assessing authority to determine for himself what is the effect and consequence of law mentioned in the audit note and whether, in consequence of the position of law which has come to his notice, a reasonable belief can be made that income has escaped assessment. The basis of his belief must be the position of law indicated to him 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. Therefore, the evaluation of the legal position and its bearing on the assessment has to be directly and solely undertaken by the Assessing Officer. If the Assessing Officer solely acts on the opinion expressed by the Revenue audit party without indication of application of mind by him, as regards the applicability of the position in law indicated to him, to the case of the assessee, the reopening under Section 147(b) would be illegal. This view has been succinctly expressed by the Supreme Court in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996. In the facts of the present case, the Commissioner of Income-tax (Appeals) has recorded the following finding :
"It is needless to point out that the Income-tax Officer's action in reopening the assessment under Section 147(b) for the assessment year 1974-75 on the basis of the Revenue audit objection cannot be sustained in view of the Supreme Court decision in the case of Indian and Eastern Newspaper Society [1979] 119 ITR 996."
8. The Tribunal's finding is to the following effect :
"On September 18, 1976, the Income-tax Officer issued notice under Section 148 on the basis of the Revenue audit note."
9. These findings are essentially conclusions from the factual position. No material has been placed before us to show that the factual position as indicated by the Commissioner of Income-tax (Appeals) or the Tribunal is contrary to the actual fact situation. In that view of the matter, we are of the opinion that the Tribunal was justified in holding that the reassessment under Section 147(b) was unauthorised, and mechanically relying on the audit objection, the Income-tax Officer cannot reopen an assessment. In view of these conclusions of ours, the second question is answered in the affirmative, in favour of the assessee and against the Revenue. We decline to answer the first question because the same will be an academic exercise.
10. The reference is accordingly disposed of. No costs.
S.K. Mohanty, J.
11. I agree.