Commissioner of Income Tax vs Ved Prakash Agarwal

We have heard learned Counsel for the Income Tax Department.

Apparently a completed assessment was re-opened u/s 147(b) read with Section 148 of the Income Tax Act. The re-opening was upheld by the Tribunal by the order dated 25.1.1985. Subsequently, an application for rectification tinder Section 254 of the Act was moved by the assessee upon which the Tribunal stated as follows:

At the time of pasting the original order the ''Tribunal has not seen the original reasons which were recorded by the ITO. The ITO stated that he had information in his possession which showed that income chargeable to tax escaped assessment. In the reasons recorded it was not spelt out as to which of the information was in possession of the ITO. No material was pointed out in the reasons recorded, so it can safely be held that there was no material before the ITO for starting proceedings u/s 147(b) of the Act. So on this ground alone the reopening of the assessment u/s 147(b) is bad in Jaw. Consequently the application is allowed. The, order passed by the Tribunal dated 25th Jan., 1985 is vacated.

Now the Tribunal has referred the following two questions in the form of this reference:

Whether on the fact and in the circumstances of the case the Appellate Tribunal was justified in recalling the order of the Tribunal dated 25.1.1985.

Whether on the fact and in the circumstances of the case the Appellate Tribunal was correct in holding that ITO had no material in his possession when he has issued the notice u/s 148 for re-opening the, assessment?

In the earlier order dated 25.1.1985 the Tribunal had recorded a finding that the re-opening of assessmment and "reason" to "believe" therefore was based upon the discrepancy pointed out in an audit report. It is well settled that an audit report, unless it is an opinion on a question of law, can form the basis for generating the "reason to believe".

However, the "Reason to believe" has to be recorded, though not communicated, by the assessin officer before proceeding to re-open the assessment.

Whether the objections pointed out in the audit report were the basis for entertaining the "reason to believe", or the basis was something else, has to be determined in act accordance with words in which the "reason to believe" has been recorded by the I.T.O. Apparently the order of the Tribunal suggests now that, there was nothing in the roc r Jed "reasons to believe" to warrant the inference that the "reason to believe" was based upon the objections in the audit, report. Thus there was an error apparent; on the record in the order dated 25.1.1985.

It is settled that errors apparent on the record can be rectified u/s 254. The case law on this issue has been discussed by the Division Bench of this Court in the case of Biswanath Prasad and Sons Vs. Commissioner of Income Tax,

Thus, we answer the question referred above as follows:

(1) In the facts and circumstances of the case the Tribunal was justified in recalling the order of the Tribunal dated 25.1.2005

(2) In the facts and circumstances of the case the Appellate Tribunal, was correct in holding that the I.T.O. had no material in: his possession when he had issued the notice u/s 148 for re-opening the assessment.

Reference answered accordingly.