JUDGMENT
1. This reference application under Section 250(2) of the Income-tax Act, 1961, has been filed by M/s. Zoraster and Company (hereinafter referred to as “the assessee”). In the present case, the original assessment for the assessment year 1972-73 was made on January 31, 1975. Thereafter, on a report of the internal audit party, proceedings for reopening the assessment under Section 147(b) read with 148 was taken, and the reassessment order was passed on March 7, 1978. The assessee, aggrieved against the order of the Income-tax Officer under Section 143(3) read with Section 148, filed an appeal before the Commissioner of Income-tax (Appeals), Rajasthan. Learned Commissioner of Income-tax (Appeals) by his order dated March 27, 1980, allowed the appeal taking the view that in the facts and the circumstances of this case, it was only a question of change of opinion on the basis of the facts existing at the time of original assessment and the provisions of Section 147(b) could not be attracted. The Revenue, aggrieved against the order of the Commissioner, went in appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal, by order dated December 7, 1981, allowed the appeal filed by the Revenue. The Tribunal in its order has extracted in detail the reasons recorded by the ITO before initiating the proceedings under Sections 147(b) and 148. Thereafter, the Tribunal observed that the Revenue audit party had pointed out that the assessee had given interest-free advances to as many as 8 parties from whom no interest was charged. On the contrary, interest was paid to creditors and banks on borrowings for the purpose of business and these borrowings were not utilised for the purpose of business. This note of the revenue audit party pointed out certain factual information about non-charging of interest from certain parties listed in the audit note and it was reproduced in the reasons recorded by the Income-tax Officer. The Tribunal thus was clearly of the view that the Income-tax Officer at the time of original assessment had considered the debit balances in the accounts of only 3 persons, that is, Shri H.C. Golcha, Shri R.K. Golcha and Shri R.K. Golcha and Sons, while the audit party had pointed out the names of 8 parties to whom interest free advances were given. None of these accounts was considered by the Income-tax Officer at the time of original assessment. It was further observed by the Tribunal that in the reassessment order passed by the Income-tax Officer, he had referred to as many as 15 accounts on which no interest was charged by the assessee, though huge amount was borrowed for business purposes, but not utilised. Total debit balance in the 8 accounts mentioned in the audit note was Rs. 16.8 lakhs over and above the debit balance of Rs. 8,47,274 considered by the Income-tax Officer at the time of original assessment. The Tribunal thus was clearly of the opinion that it was a case of receiving subsequent information by the Income-tax Officer which was not considered by him at all at the time of the original assessment. The audit note which only pointed out certain facts was subsequent information within the meaning of Section 147(b) of the Income-tax Act The assessee then filed an application under Section 256(1) for making the reference to this, court which was dismissed by the Tribunal by order dated December 20, 1982.
2. Mr. Keshote, learned counsel for the assessee submitted that the Hon’ble Supreme Court in Indian and Eastern Newspaper Society v. CIT, [1979] 119 ITR 996 has held that any legal opinion given by the audit party cannot form a basis for reopening the assessment proceedings under Section 147(b) of the Act. Mr. Keshote contended that in the present case a legal opinion had been given by the audit party that though the assessee had given interest-free advances to various parties, it had paid huge amounts by way of interest to creditors and banks.
3. On the other hand, Mr. Surolia, learned counsel for the Revenue, submitted that no question of law arises in the present case for the opinion of this court. In the present case, the internal audit party had given information on questions of fact and the same could have formed a legitimate basis for starting proceedings for reassessment under Section 147(b) of the Act. It was also submitted by Mr. Surolia that their Lordship of the Supreme Court in Eastern Newspaper Society’s case [1979] 119 ITR 996 have only laid down the proposition that if any opinion is given by the internal audit party on a question of law, then such opinion cannot be considered as a source of information for taking proceedings for reassessment under Section 147(b) of the Act. Mr. Surolia, learned counsel for the assessee, also pointed out that their Lordships V.B. Chandrachud and M.P. Thakkar, Judges have granted special leave to the department to appeal against the judgment dated September 28, 1978, of the Karnataka High Court in Writ Petition Nos. 446 and 447 of 1978 T.T. Pvt Ltd. v. ITO, [1980] 121 ITR 551, whereby the High Court allowed the assessee’s writ appeals challenging the reassessment notice issued by the Income-tax Officer on the basis of a report of the internal audit party of the Income-tax Department. In the above special leave, their Lordships have specifically limited the question to considering the correctness of the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT, [1979] 119 ITR 996.
4. We have given our thoughtful consideration to the facts and circumstances of the case and the arguments advanced by learned counsel for both the parties so far as the proposition laid down in. Eastern Newspaper Society’s case [1979] 119 ITR 996 is concerned do not arise in the present case. A perusal of the order of the Tribunal clearly shows that the Income-tax Officer had acted upon certain factual sources of information made available in the report of the internal audit party. It was clearly pointed out in the report by the audit party that there were 8 parties to whom interest-free advances were given, while at the time of original assessment, only the debit balances of 3 parties were considered by the Income-tax Officer. Another information given in the report of the audit party was that though at the time of original assessment, only debit balances of Rs. 8,47,274 were considered by the Income-tax Officer, the audit note showed Rs. 16.8 lakhs over and above the same. In our view, the Tribunal was justified in holding that it was a case of receiving subsequent factual information by the Income-tax Officer which was not considered by him at all at the time of original assessment. We are satisfied that in the facts and circumstances of this case, the audit note pointed out certain facts which had constituted subsequent information within the meaning of Section 147(b) of the Act. In view of these circumstances, no question of law arises in the present case for giving a direction to the Tribunal to state a case for the opinion of this court. Mr. Keshote submitted that the following question still arises in the case which is a question of law and a reference should be called with regard to this question.
“Whether, on the facts and in the circumstances of the case, the audit note given on the same material which was also before the Income-tax Officer will constitute subsequent information under Section 147(b) of the Act ?”
5. In our view, there is no scope at all for the above question arising in the, present case. We have already mentioned above that the Income-tax Officer had failed to take note of the material at the time of original assessment that there were 8 persons instead of 3 from whom interest was not charged and that a wrong amount was considered as the debit balance. In view of these circumstances, there is no force in this reference application and it is accordingly dismissed.