Case: R. K. Malhotra, I.T.O. Group Circle II (1), Ahmedabad Vs. Kastur Bhai Lalbhai (H.U.F.)

law would be information under section 147(b). While conceding this position Mr.B. Sen, the learned counsel, submitted that a note by the Audit Department that the I.T.O.s view of law that the assessee is entitled to deduct the municipal taxes is erroneous, would not amount to information especially when the I.T.O. was aware of the fact that the houses were self-occupied. The fact that the I.T.O. was aware of the fact that the houses were self-occupied and that he could have with diligence found that the assessee would not be entitled to the exemption will not preclude the officer from using the auditors note as fresh information. 6. This Court in Commissioner of Income-tax, Gujarat v. A. Raman and Co.(67 I.T.R. 11.), disagreed with the view taken by the High Court of Gujarat that the information in consequence of which proceedings of reassessment were intended to be started could have been gathered by the Income-tax Officer in charge of the assessment in the previous years from the disclosures made by the two Hindu undivided families and would not be information. This court held"Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information, must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected." The Court further observed that information means instruction or knowledge derived from an external source. But the words "external source" cannot be construed as implying that the source must be outside the record. The information may be gathered from the assessment record itself. 7. The plea of the learned counsel that the audit report is not information remains to be considered. A few decisions of the High Court on this point may now be referred to. In Commissioner of Income-tax, Delhi v. H. H. Smt. Chand Kanwarji(84 I.T.R. 584.), the Delhi High Court held that the scrutiny note of the Revenue Audit and the letter of the Inspecting Assistant Commissioner constituted information within the meaning of section 147(b) from an "external source" and the assessments were, therefore, valid. The Income-tax Officer treated the income derived by way of interest from bank deposits as "earned income" and accepted the assessees claim of expenditure on the salary paid to her daughter-in-law. Subsequently, the revenue audit staff working under the Comptroller and Auditor-General of India, while scrutinising these assessments, brought to the notice of the department that the Income-tax Officer had wrongly treated the "interest income" as "business income" and also that the Income-tax Officer had wrongly allowed the assessees claim with regard to the salary paid to her daughter-in-law. The Income-tax Officer acted upon this note and reopened the original assessment. A Bench of the Delhi High Court relying on the reasoning of this Court in 72 I.T.R. 376 that the opinion expressed by the Central Board of Revenue in appeal under the Estate Duty Act would be "information held that the note of the revenue audit under the Comptroller and Auditor-General of India would be information. The same view was expressed in Commissioner of Income-tax v. Kelukutty(85 I.T.R. 102.) by the Kerala High Court. Mathew J. speaking for the court held that the note put up by the Audit to the effect that the assessment ought to have been made on the reconstituted firm for the entire income of the two periods and therefore the Income-tax Officer committed an error, was instruction or knowledge derived from an external source and would constitute information. In Vashist Bhargava v. Income-tax Officer, Salary Circle, New Delhi(99 I.T.R. 148.), a Bench of the Delhi High Court held that when subsequent to the assessment the Ministry of Law and the Revenue Audit pointed out that as a question of fact the payment of interest by the petitioner was made to his own account in the Provident Fund and as a question of law the money so paid did not vest in the Government but continued to belong to the petitioner, and therefore, the income of the petitioner had escaped assessment, it would be information available to the Income-tax Officer.We feel that the view of the Delhi High Court in 84 I.T.R. 584 and 99 I.T.R. 148 and that of the Kerala High Court in 85 I.T.R. 102 is correct. Ample support is derived for that view from the law laid down by t his Court in Commissioner of Income-tax, Gujarat, v. A. Raman and Co.(67 I.T.R. 11.), where it was held that the expression information in the context would mean instruction or knowledge derived from an external source concerning fact or particulars or as to law relating to a matter bearing on the assessment. It is not disputed that the decisions of courts of law and Income-tax Appellate Tribunal would be information of law. This Court, as already pointed out in 72 I.T.R. 376 has held that the opinion of the Central Board of Revenue as regard the valuation of securities for the purpose of Estate Duty would be information. 8. The Gujarat High Court was correct in its view that it would be information of law if it is stated by a person, body or authority competent and authorised to pronounce upon the law and is invested with authority to do so. In applying this principle the Court erred in holding that Audit department is not an authority competent and authorised to declare the correct state of law or to pronounce upon it. The Audit Department is the proper machinery to scrutinise the assessments of the Income-tax Officer and point out the errors, if any, in law. 9.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The fact that the I.T.O. was aware of the fact that the houses were self-occupied and that he could have with diligence found that the assessee would not be entitled to the exemption will not preclude the officer from using the auditors note as fresh informationThe plea of the learned counsel that the audit report is not information remains to be considered. A few decisions of the High Court on this point may now be referred to. In Commissioner of Income-tax, Delhi v. H. H. Smt. Chand Kanwarji(84 I.T.R. 584.), the Delhi High Court held that the scrutiny note of the Revenue Audit and the letter of the Inspecting Assistant Commissioner constituted information within the meaning of section 147(b) from an "external source" and the assessments were, therefore, valid. The Income-tax Officer treated the income derived by way of interest from bank deposits as "earned income" and accepted the assessees claim of expenditure on the salary paid to her daughter-in-law. Subsequently, the revenue audit staff working under the Comptroller and Auditor-General of India, while scrutinising these assessments, brought to the notice of the department that the Income-tax Officer had wrongly treated the "interest income" as "business income" and also that the Income-tax Officer had wrongly allowed the assessees claim with regard to the salary paid to her daughter-in-law. The Income-tax Officer acted upon this note and reopened the original assessment. A Bench of the Delhi High Court relying on the reasoning of this Court in 72 I.T.R. 376 that the opinion expressed by the Central Board of Revenue in appeal under the Estate Duty Act would be "information held that the note of the revenue audit under the Comptroller and Auditor-General of India would be information. The same view was expressed in Commissioner of Income-tax v. Kelukutty(85 I.T.R. 102.) by the Kerala High Court. Mathew J. speaking for the court held that the note put up by the Audit to the effect that the assessment ought to have been made on the reconstituted firm for the entire income of the two periods and therefore the Income-tax Officer committed an error, was instruction or knowledge derived from an external source and would constitute information. In Vashist Bhargava v. Income-tax Officer, Salary Circle, New Delhi(99 I.T.R. 148.), a Bench of the Delhi High Court held that when subsequent to the assessment the Ministry of Law and the Revenue Audit pointed out that as a question of fact the payment of interest by the petitioner was made to his own account in the Provident Fund and as a question of law the money so paid did not vest in the Government but continued to belong to the petitioner, and therefore, the income of the petitioner had escaped assessment, it would be information available to the Income-tax Officer.We feel that the view of the Delhi High Court in 84 I.T.R. 584 and 99 I.T.R. 148 and that of the Kerala High Court in 85 I.T.R. 102 is correct. Ample support is derived for that view from the law laid down by t his Court in Commissioner of Income-tax, Gujarat, v. A. Raman and Co.(67 I.T.R. 11.), where it was held that the expression information in the context would mean instruction or knowledge derived from an external source concerning fact or particulars or as to law relating to a matter bearing on the assessment. It is not disputed that the decisions of courts of law and Income-tax Appellate Tribunal would be information of law. This Court, as already pointed out in 72 I.T.R. 376 has held that the opinion of the Central Board of Revenue as regard the valuation of securities for the purpose of Estate Duty would be informationThe Gujarat High Court was correct in its view that it would be information of law if it is stated by a person, body or authority competent and authorised to pronounce upon the law and is invested with authority to do so. In applying this principle the Court erred in holding that Audit department is not an authority competent and authorised to declare the correct state of law or to pronounce upon it. The Audit Department is the proper machinery to scrutinise the assessments of the Income-tax Officer and point out the errors, if any, in law.