My assessment is being reopened because an internal audit party told the officer he applied the wrong head of income. Is an audit party's opinion on the law information for reopening?
No. The Supreme Court held that the opinion of an internal audit party of the Income Tax Department on a point of law is not information within section 147(b). Law, for this purpose, must be created by a formal source - a competent legislature or a competent judicial or quasi-judicial authority - and an audit party performs administrative or executive functions with no power of judicial supervision over the officer's quasi-judicial acts. The part of an audit note that merely points to the law the officer overlooked is information; the part expressing the audit party's own opinion on how that law applies is not, and cannot be taken into account.
Decided by the Supreme Court (Supreme Court of India - P.N. Bhagwati, V.D. Tulzapurkar and R.S. Pathak JJ; judgment by Pathak J) on 1979-08-31, reported as (1979) 119 ITR 996; 1979 AIR 1960; 1980 SCR (1) 442; 1979 (4) SCC 248; (1979) 2 Taxman 197; 1979 SCC (Tax) 336; (1979) Tax LR 1299; 1979 (4) SCC 357. It bears on section 147(b), section 147, section 257 of the Income Tax Act 1961, in Reassessment & Reopening and Assessment & Scrutiny matters.
This is the decision that fixed the boundary between a permissible reopening and a change of opinion, and it is still the starting point for that argument. It supplies the distinction practitioners use - between the source of the law and the communicator of the law: anyone may bring the law to the officer's notice, but the evaluation of its bearing on the assessment must be made directly and solely by him. It expressly disapproved the wider proposition in Kalyanji Mavji that income escaping assessment through the officer's oversight, inadvertence or mistake falls within the reopening power, holding that an error discovered on a reconsideration of the same material and nothing more gives no such power. It also overruled the Court's own recent decision in R.K. Malhotra v Kasturbhai Lalbhai, and disapproved the Delhi and Kerala High Court decisions that had treated audit notes as information. And it settled the sequence in the section: information first, then reason to believe - the information is not the realisation, it gives birth to the realisation.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
The assessee is a society registered under the Indian Companies Act, a professional association of newspapers formed principally to promote the welfare and interest of all newspapers. It owns a building with a conference hall and rooms let on rent to members and outsiders, and provides certain other services to members. That income had all along been assessed as income from business, including for assessment years 1960-61 to 1963-64. The Department's internal audit organisation, whose function is to examine income-tax records and check mistakes with a view to improving the quality of assessments, audited the assessee's records for those years and expressed the view that the money realised on the occupation of the conference hall and rooms should have been assessed under the head income from property and not as business income. The Income Tax Officer treated that report as information in his possession for section 147(b) and reassessed on that basis. The Appellate Assistant Commissioner allowed the assessee's appeals, holding among other things that the officer had no information in law. The Tribunal, noting the conflict between the Gujarat High Court in Kasturbhai Lalbhai, which had held an internal audit report was not information, and the Delhi High Court in Chand Kanwarji, which held the contrary, followed the Delhi view and held the officer had jurisdiction. Because of that conflict the Tribunal referred the question directly to this Court under section 257. By then the Gujarat decision had been reversed on appeal in R.K. Malhotra v Kasturbhai Lalbhai, and the Court agreed to take a fresh look at that decision given the dimensions of the controversy.
The question was answered in the negative, in favour of the assessee, with one set of costs. Whether one takes the internal audit organisation's functions as co-extensive with those of Receipt Audit or works from the Internal Audit Manual, the opinion of an internal audit party on a point of law is not information within section 147(b). While sections 9 and 10 can be described as law, the audit party's opinion on their application is not law, since it is not a declaration by a body authorised to declare the law. Only that part of an audit note which mentions the law that escaped the officer's notice is information; the part embodying the audit party's opinion on the application or interpretation of the law cannot be taken into account. The officer must determine for himself the effect and consequence of the law mentioned in the note, and his belief must rest on the law of which he has become aware, the audit opinion adding nothing to it. Here the officer had considered sections 9 and 10 when making the original assessment, so a different view later would be a change of opinion on material already considered. The Court held that the observations in Kalyanji Mavji & Co, that a case where income escaped assessment through the officer's oversight, inadvertence or mistake must fall within the reopening power, are stated too widely and do not lay down the correct law so far as they permit reopening on a reappraisal of the same material. It held that this Court was in error in R.K. Malhotra v Kasturbhai Lalbhai, and that the Delhi and Kerala High Court decisions in Chand Kanwarji and Kalukutty are wrong.
The Court started from the finality of a quasi-judicial assessment, which can be disturbed only in the proceedings and within the confines the law provides - appeal, revision, rectification, or reassessment under section 147. Information in section 147(b) is an indispensable ingredient of that power. Maharaj Kamal Singh had held, on the corresponding section 34(1)(b) of the 1922 Act, that information covers not only facts but the true and correct state of the law, including relevant judicial decisions; Raman & Company defined it as instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment. Facts give little difficulty, since a fact has concrete existence and needs no authority to make it significant. Law is more complex. To have legal significance it must be enacted or declared by competent authority - statute proceeding from a competent legislature, or judge-made law emanating from a declaration or exposition by a competent judicial or quasi-judicial authority. A statement by a person or body not competent to create or define the law is not law: suggested interpretations in textbooks and journals, forensic submissions and academic writing are opinions and at best evidence of the state of the law, with no binding effect. So information as to law in section 147(b) means law created by a formal source. The Court then examined what an audit party is. The Department's internal audit was set up primarily to check the arithmetical accuracy of computation and determination of tax, and since income tax receipts came under the Comptroller and Auditor-General in 1960 its work has been co-extensive with Receipt Audit, whose scope is defined by section 16 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act 1971 - to satisfy him of the sufficiency of the rules and procedures securing an effective check on assessment and collection. The Board's Circular 14/19/56-II of 28 July 1960 warns that the Audit Department should not in any way substitute itself for the revenue authorities in performing their statutory duties, and states that audit does not consider it part of its duty to review the judgment exercised in individual cases, its enquiries being directed to forming a general judgment, the detection of individual errors being an incident rather than the object of audit. Nothing in the Internal Audit Manual confers on an audit report the status of a declaration of law binding on the officer. Audit parties perform essentially administrative or executive functions and cannot be given the powers of judicial supervision over the quasi-judicial acts of income tax authorities. From that the Court drew its central distinction: law is one thing and its communication another; the law may be laid down only by a body with authority, but knowledge of the law may be communicated by anyone, and no authority is needed for that. It also rejected the argument that the officer's own realisation of his mistake is the information, holding that the section requires information first and reason to believe in consequence - the information is not the realisation, it gives birth to the realisation. Finally it explained the estate duty case relied on in Kasturbhai Lalbhai: the Central Board of Revenue's opinion there was expressed in an appeal under the Estate Duty Act, so it was the view of a quasi-judicial authority with jurisdiction to lay down the law, not of an extra-judicial body performing administrative functions. Vashist Bhargava was supportable on a different ground, that the basic information was the fact that the interest had been paid into the assessee's own provident fund account, from which the legal conclusion followed automatically.
Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying section 147(b) may be avoided.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that the opinion of an internal audit party of the Income Tax Department on a point of law is not information within section 147(b). Law, for this purpose, must be created by a formal source - a competent legislature or a competent judicial or quasi-judicial authority - and an audit party performs administrative or executive functions with no power of judicial supervision over the officer's quasi-judicial acts. The part of an audit note that merely points to the law the officer overlooked is information; the part expressing the audit party's own opinion on how that law applies is not, and cannot be taken into account. This was decided by the Supreme Court (Supreme Court of India - P.N. Bhagwati, V.D. Tulzapurkar and R.S. Pathak JJ; judgment by Pathak J) and bears on section 147(b), section 147, section 257 of the Income Tax Act 1961. It is reported as (1979) 119 ITR 996; 1979 AIR 1960; 1980 SCR (1) 442; 1979 (4) SCC 248; (1979) 2 Taxman 197; 1979 SCC (Tax) 336; (1979) Tax LR 1299; 1979 (4) SCC 357. This is the decision that fixed the boundary between a permissible reopening and a change of opinion, and it is still the starting point for that argument. It supplies the distinction practitioners use - between the source of the law and the communicator of the law: anyone may bring the law to the officer's notice, but the evaluation of its bearing on the assessment must be made directly and solely by him. It expressly disapproved the wider proposition in Kalyanji Mavji that income escaping assessment through the officer's oversight, inadvertence or mistake falls within the reopening power, holding that an error discovered on a reconsideration of the same material and nothing more gives no such power. It also overruled the Court's own recent decision in R.K. Malhotra v Kasturbhai Lalbhai, and disapproved the Delhi and Kerala High Court decisions that had treated audit notes as information. And it settled the sequence in the section: information first, then reason to believe - the information is not the realisation, it gives birth to the realisation. If it applies to you, the first step is this: Ask what the officer actually had before him at the original assessment. If he considered the same provisions and the same material, a later different view is a change of opinion and not a reopening.
The assessee is a society registered under the Indian Companies Act, a professional association of newspapers formed principally to promote the welfare and interest of all newspapers. It owns a building with a conference hall and rooms let on rent to members and outsiders, and provides certain other services to members. That income had all along been assessed as income from business, including for assessment years 1960-61 to 1963-64. The Department's internal audit organisation, whose function is to examine income-tax records and check mistakes with a view to improving the quality of assessments, audited the assessee's records for those years and expressed the view that the money realised on the occupation of the conference hall and rooms should have been assessed under the head income from property and not as business income. The Income Tax Officer treated that report as information in his possession for section 147(b) and reassessed on that basis. The Appellate Assistant Commissioner allowed the assessee's appeals, holding among other things that the officer had no information in law. The Tribunal, noting the conflict between the Gujarat High Court in Kasturbhai Lalbhai, which had held an internal audit report was not information, and the Delhi High Court in Chand Kanwarji, which held the contrary, followed the Delhi view and held the officer had jurisdiction. Because of that conflict the Tribunal referred the question directly to this Court under section 257. By then the Gujarat decision had been reversed on appeal in R.K. Malhotra v Kasturbhai Lalbhai, and the Court agreed to take a fresh look at that decision given the dimensions of the controversy. The matter was decided on 1979-08-31 by the Supreme Court (Supreme Court of India - P.N. Bhagwati, V.D. Tulzapurkar and R.S. Pathak JJ; judgment by Pathak J). On those facts the Supreme Court held as follows. The question was answered in the negative, in favour of the assessee, with one set of costs. Whether one takes the internal audit organisation's functions as co-extensive with those of Receipt Audit or works from the Internal Audit Manual, the opinion of an internal audit party on a point of law is not information within section 147(b). While sections 9 and 10 can be described as law, the audit party's opinion on their application is not law, since it is not a declaration by a body authorised to declare the law. Only that part of an audit note which mentions the law that escaped the officer's notice is information; the part embodying the audit party's opinion on the application or interpretation of the law cannot be taken into account. The officer must determine for himself the effect and consequence of the law mentioned in the note, and his belief must rest on the law of which he has become aware, the audit opinion adding nothing to it. Here the officer had considered sections 9 and 10 when making the original assessment, so a different view later would be a change of opinion on material already considered. The Court held that the observations in Kalyanji Mavji & Co, that a case where income escaped assessment through the officer's oversight, inadvertence or mistake must fall within the reopening power, are stated too widely and do not lay down the correct law so far as they permit reopening on a reappraisal of the same material. It held that this Court was in error in R.K. Malhotra v Kasturbhai Lalbhai, and that the Delhi and Kerala High Court decisions in Chand Kanwarji and Kalukutty are wrong.
The Court started from the finality of a quasi-judicial assessment, which can be disturbed only in the proceedings and within the confines the law provides - appeal, revision, rectification, or reassessment under section 147. Information in section 147(b) is an indispensable ingredient of that power. Maharaj Kamal Singh had held, on the corresponding section 34(1)(b) of the 1922 Act, that information covers not only facts but the true and correct state of the law, including relevant judicial decisions; Raman & Company defined it as instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment. Facts give little difficulty, since a fact has concrete existence and needs no authority to make it significant. Law is more complex. To have legal significance it must be enacted or declared by competent authority - statute proceeding from a competent legislature, or judge-made law emanating from a declaration or exposition by a competent judicial or quasi-judicial authority. A statement by a person or body not competent to create or define the law is not law: suggested interpretations in textbooks and journals, forensic submissions and academic writing are opinions and at best evidence of the state of the law, with no binding effect. So information as to law in section 147(b) means law created by a formal source. The Court then examined what an audit party is. The Department's internal audit was set up primarily to check the arithmetical accuracy of computation and determination of tax, and since income tax receipts came under the Comptroller and Auditor-General in 1960 its work has been co-extensive with Receipt Audit, whose scope is defined by section 16 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act 1971 - to satisfy him of the sufficiency of the rules and procedures securing an effective check on assessment and collection. The Board's Circular 14/19/56-II of 28 July 1960 warns that the Audit Department should not in any way substitute itself for the revenue authorities in performing their statutory duties, and states that audit does not consider it part of its duty to review the judgment exercised in individual cases, its enquiries being directed to forming a general judgment, the detection of individual errors being an incident rather than the object of audit. Nothing in the Internal Audit Manual confers on an audit report the status of a declaration of law binding on the officer. Audit parties perform essentially administrative or executive functions and cannot be given the powers of judicial supervision over the quasi-judicial acts of income tax authorities. From that the Court drew its central distinction: law is one thing and its communication another; the law may be laid down only by a body with authority, but knowledge of the law may be communicated by anyone, and no authority is needed for that. It also rejected the argument that the officer's own realisation of his mistake is the information, holding that the section requires information first and reason to believe in consequence - the information is not the realisation, it gives birth to the realisation. Finally it explained the estate duty case relied on in Kasturbhai Lalbhai: the Central Board of Revenue's opinion there was expressed in an appeal under the Estate Duty Act, so it was the view of a quasi-judicial authority with jurisdiction to lay down the law, not of an extra-judicial body performing administrative functions. Vashist Bhargava was supportable on a different ground, that the basic information was the fact that the interest had been paid into the assessee's own provident fund account, from which the legal conclusion followed automatically. In the words reproduced by the source cited on this page: "Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying section 147(b) may be avoided."
It was decided by the Supreme Court on 1979-08-31 and is reported as (1979) 119 ITR 996; 1979 AIR 1960; 1980 SCR (1) 442; 1979 (4) SCC 248; (1979) 2 Taxman 197; 1979 SCC (Tax) 336; (1979) Tax LR 1299; 1979 (4) SCC 357. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 147(b), section 147, section 257, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The question was answered in the negative, in favour of the assessee, with one set of costs. Whether one takes the internal audit organisation's functions as co-extensive with those of Receipt Audit or works from the Internal Audit Manual, the opinion of an internal audit party on a point of law is not information within section 147(b). While sections 9 and 10 can be described as law, the audit party's opinion on their application is not law, since it is not a declaration by a body authorised to declare the law. Only that part of an audit note which mentions the law that escaped the officer's notice is information; the part embodying the audit party's opinion on the application or interpretation of the law cannot be taken into account. The officer must determine for himself the effect and consequence of the law mentioned in the note, and his belief must rest on the law of which he has become aware, the audit opinion adding nothing to it. Here the officer had considered sections 9 and 10 when making the original assessment, so a different view later would be a change of opinion on material already considered. The Court held that the observations in Kalyanji Mavji & Co, that a case where income escaped assessment through the officer's oversight, inadvertence or mistake must fall within the reopening power, are stated too widely and do not lay down the correct law so far as they permit reopening on a reappraisal of the same material. It held that this Court was in error in R.K. Malhotra v Kasturbhai Lalbhai, and that the Delhi and Kerala High Court decisions in Chand Kanwarji and Kalukutty are wrong. It arises in Reassessment & Reopening and Assessment & Scrutiny matters, on section 147(b), section 147, section 257 of the Income Tax Act 1961, and was decided by Supreme Court of India - P.N. Bhagwati, V.D. Tulzapurkar and R.S. Pathak JJ; judgment by Pathak J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Call for the audit note and separate its two parts - the law it points to, and the audit party's opinion about how that law applies - because only the first can support the belief. Look for the officer's own evaluation on the record. The Court required the true evaluation of the law in its bearing on the assessment to be made directly and solely by him, so a reassessment that merely adopts the audit view is open to attack. Distinguish an opinion of a body exercising adjudicatory power, which can be information, from an opinion of an administrative or audit body, which cannot - that is how the Court explained the estate duty case relied on against the assessee. Read the current section 147 and its Explanations before applying this to a recent year; the section has been recast more than once since 1979.
Still good law. I read the full judgment to its answer on the reference and the order for costs. I checked no later authority or statutory history in this session. The propositions on change of opinion and on the difference between the source and the communicator of the law are applied constantly and were, so far as I know, carried forward when section 147 was recast; but section 147 has been amended more than once since 1979 - the requirement of information reappears in a different form in the current scheme - so a reader must apply this reasoning to the text governing his own year rather than to section 147(b) as it stood. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Until build 87 this library carried a second entry on the same judgment, at /caselaw/case/indian-and-eastern-newspaper-society-v-cit-audit-opinion-is-not-information/, which asked: My assessment has been reopened because the department's internal audit party said the officer applied the wrong head of income. Is an audit party's opinion "information" for reassessment? It was the shorter of the two write-ups and has been merged into this one. That address now redirects here, and every citation, section and subject it carried that this entry did not has been folded in. The Court decided only the jurisdictional question and did not decide whether the receipts from letting the conference hall and rooms were properly assessable as business income or as income from property; the original treatment as business income therefore stands undisturbed by anything decided here. The judgment states the assessment years as 1960-61 to 1963-64, for which the heads of income were those of the 1922 Act, while the reopening was under section 147(b) of the 1961 Act, and the Court does not explain that overlap. It also leaves open how much of an audit note may safely be relied on where the note both identifies a provision and reasons about it, saying only that the officer must evaluate the law himself. I did not check any later authority. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered in the negative, in favour of the assessee, with one set of costs. Whether one takes the internal audit organisation's functions as co-extensive with those of Receipt Audit or works from the Internal Audit Manual, the opinion of an internal audit party on a point of law is not information within section 147(b). While sections 9 and 10 can be described as law, the audit party's opinion on their application is not law, since it is not a declaration by a body authorised to declare the law. Only that part of an audit note which mentions the law that escaped the officer's notice is information; the part embodying the audit party's opinion on the application or interpretation of the law cannot be taken into account. The officer must determine for himself the effect and consequence of the law mentioned in the note, and his belief must rest on the law of which he has become aware, the audit opinion adding nothing to it. Here the officer had considered sections 9 and 10 when making the original assessment, so a different view later would be a change of opinion on material already considered. The Court held that the observations in Kalyanji Mavji & Co, that a case where income escaped assessment through the officer's oversight, inadvertence or mistake must fall within the reopening power, are stated too widely and do not lay down the correct law so far as they permit reopening on a reappraisal of the same material. It held that this Court was in error in R.K. Malhotra v Kasturbhai Lalbhai, and that the Delhi and Kerala High Court decisions in Chand Kanwarji and Kalukutty are wrong.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?
A reassessment was done in between. Does the two-year clock for s.263 restart from it?