LexA.L.A. FIRM versus COMMISSIONER OF INCOME TAX, MADRAS
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A B c A.L.A. FIRM ·v. COMMISSIONER OF INCOME TAX, MADRAS FEBRUARY 21, 1991 [S. RANGANATHAN, N.M. KASLIWAL AND S.C. AGRAWAL, JJ.] Income Tax Act, 1961: Section 147(b)-Scope of-Assessment year 1961-62-Reassessment-Interpretation and meaning of the word "information"-Material coming to the notice of the Income Tax Officer subsequent to original assessment-Meaning of the word. "Escape". Dissolution of Firm-Valuation of closing stock-Principles-In continuing business closing stock to be valued at cost or market price which ever is lower-Where business is discontinued, the closing stock D to be valued at market price. The Appellant-Assessee, a partnership firm was engaged mainly, in Malaya, in money lending business since 1949 and incidental to this business was also doing the business of sale and purchase of house properties, gardens and estates. It was reconstituted under a deed dated E 26.3.1960. The firm was dissolved on 13.3.1961 and closed its accounts with effect from that date. ID its income-tax return filed on 10.4.1962 for the assessment year 1961-62 it had filed a profit and loss account wherein an amount of $.1,01,248 equivalent of Rs.1,58,057 was shown as "difference on revaluation of the estates, gardens and house proper- ties" on the dissolution of the firm. In the memo of adjustment for p income-tax purposes this amount was deducted as being not assessable either as revenue or capital. The Income Tax Officer issued notice under section 23(2) of the Act on that very day and completed the ..:;.+ assessment also on the same day after making a petty addition of Rs.2088 paid as property tax in Malaya. G When for the subsequent year 1962-63, the a~ssee filed its return showing nil income stating in the forwarding letter that the Firm had been dissolved on 13.3.1961, the I.T.O. wrote to the assessee that the revaluation difference of Rs.1,58,057 should have been brought to tax '--y'- in the previous year. The assessee replied that no profit or less could be assessed on a revaluation of assets, that the assessee was gradually H winding up its business in Malaya, the surplus would be only capital 624 A.LA. FlRM v. C.l.T.. MADRAS 625 gains and that revaluation had been at the market price prevalent since 1954 and thus no capital gains were chargeable to tax. Not satisfied, the I.T.O. issued a notice under section 148 read with section 147(b) of the Income Tax Act, 1961. The assessee filed objections. Overruling all the objections, the Income Tax Officer completed reassessment of the assessee Firm adding back the sum of Rs.1.58,057 to the previously assessed income. Having failed right upto the High Court, the assessee came in appeal before this Court. Dismissing the appeal, affirming the decision of the High Court, this Court, HELD: (1) The proceedings u/s 147(b) were validly initiated. The facts of this case squarely fall within the scope of propositions (2) and (4) enunciated in Kalyanji Mavji's case. Proposition (2) may be briefly summarised as permitting action even on a "mere change of opinion". This is what has been doubted in the IENS case. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji's case. This proposition clearly envisages a formation of opinion by the Income-Tax Officer on the basis of material already on record provided the forma- tion of such opinion is consequent on "information" in the shape of some light thrown on aspects of facts or law which the Income Tax Officer bad not earlier been conscious of. [ 636G-637B] The difference between the situations envisaged in propositions (2) and ( 4) of Kalyanji Mavji is this, that proposition ( 4) refers to a case where the Income Tax Officer initiates reassessment proceedings in the light of "information" obtained by him by an investigation into mate- rial already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income Tax Officer, having considered all the facts and law, · arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had b
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