LexKALYANJI MAVJI & CO versus C.I.T., WEST BENGAL-II
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966
KALY ANJI MAVJI & CO
v.
C.I.T., WEST BENGAL-II
December 10, 1975
(K. K. MATHEW AND S. MURTAZA FAZAL ALI, JJ.]
. Income Tax Act, 1922-Section 34(l)(b)-Scope, extent and ambit of,
with part1c11lar reference to the connotation and import of the word "informa-
tion" used. in s . . 34( 1) (b )-Escaped assessment-Reopening the original as~es:r
ment on tne basis of subsequem facts as also on the materials of the original
assessment rcvea(ed by more careful and closer circumspection is "i11formario11"
wulun the meanzng of s. 34(1) (b). of the Act and not a case of mere change
Of O{Jl/11011.
The appellant company, a registered partnership firm, filed its income tax
returns for the years 1956-57 and also for 1957-58 respectively showing a total
income of' Rs. 7,44,551/-, after claiming a deduction of a sum of Rs. 43,116/-,
being the amount of interest paid by the assessee on the debts incurred for the
partnership business along with the balance sheet in support of the said deduc-
tions. The Income Tax Officer accepted the claim on the basis of the balance
sheet.
When the assessee filect his return for the year 1958-59, the Income
Tax Officer discovered that the deduction claimed by the appellant was
not
correct and called upon the assessee1 to prove its plea.
But, the assessee did not
lead any evidence before him. The Income Tax Officer finding that the deduction
of interest claimed was utilised for giving interest free loans to the partners for
clearing their income-tax dues and, as such, it could not be said to be a loan
incurred for the expenses of the partnership firm, not only disallowed the deduc-
tion claimed for that assessment year, but also issued a notice under s. 34 (l)(b)
for the re-opening
of' the original assessment of the previous year5 on the
ground that the deduction having been wrongly allowed, taxable income escaped
assessment. Accordingly, the Income Tax Officer re-assessed him by including
Rs. 43, 116 to the total income. The appeal to the Appellate Assistant Com-
missioner failed.
However, on second appeal, the Income Tax Appellate Tribu-
nal "B" Bench, Calcutta, set aside the order of the reassessment opining that
the information resulting in the reassessment notice under s. 34(1) (b) was not
based on any fresh facts, but was derived from the materials on the record of
the original assessment amounting to a change of opinion and, as such, was not
\ufficient to attract the provisions of s. 34(1 )(b). On the application of the
respondent-Revenue, the Tribunal made a reference under s. 66(1) of the Act
framing a question, namely,
"Whether on the facts and in the circumstances of the case the Tribu-
nal was right in holding that the reassessment .made_ by the Income Tax
Officer under s. 34(1)(b) of the Indian Income Tax Act (1922) was
incompetent ?"
to the High Court, which answered it in the negative a_nd held that the. case
squarely fell within the ambit of s. 34(1)(b) of the Act urnsmuch as the mf.o~
mation on the basis of which the Income Tax Officer sought to reopen the ongl-
nal assessment, was based on subsequent facts as also on the mat:rials of the
original assessment revealed by more careful and closer cll'cumspectton of these
materials.
Negativing the following three contentions of
the
assessee·
appellant,
namely,
H
(i) The information relied upon by the Income Tax Officer not .h~ving been
derived from external sources, it amoUJ}ted to a mere change or op_lf!lOn on the
very facts and materials that were present on the record of the ongmal assess-
ment not attracting the provisions of s. 34(1)(b) of the Act.
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KALYANJI MAVJI & CO. V. C.l.T.
967
(ii) It was not open to the Income Tax Office,r to have reopened the original
assessment merely because he took a diffurent view of the matter in the assess-
ment year 1958-59·.
(iii) That the High Court has not appreciated the ratio laid down by the
Supreme Court in Commissioner of Income-tax, Gujw:at v. A. Rllman and Com-
pany, 67 J.T.R. 11, and disnuss1ng the appeal by sp•ecial leave, the Court
HELD : (1) S. 34( l) contemplates two categories of cases for reopening the
previous assessment-(i) where there has be~n an omission or failure on the
part of the assessee to make a return of his mcome under s. 22 or t~ disclose
fully and truly all material facts necessary for his assessment; and (u) where
there has been no such omission on the part of the asExcerpt shown. Read the full judgment & AI analysis in Lexace.