R. K. MALHOTRA, I.T.O. GROUP CIRCLE II(L), AHMEDABAD vs. KASTUR BHAI LALBHAI (H.U.F.)

CIVIL APPEAL No. 1977/1971Supreme Court[1978] 1 S.C.R. 28911 August 1977Bench: 2 JudgesAuthor: Y.V. CHANDRACHUD, P.S. KAILASAM R. K. MALHOTRA6 pages
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What were the facts?

The assessee, Kastur Bhai Lalbhai (H.U.F.), owned two houses. For the assessment year 1965-66, the Income-tax Officer (ITO) allowed a deduction of Rs. 4,052 for municipal taxes in determining the annual valuation of the properties under section 23(2) of the Income-tax Act, despite the properties being self-occupied. Subsequently, the office of the Comptroller and Auditor General of India, during a scrutiny of assessments, pointed out that this deduction was not admissible for self-occupied properties. The ITO treated this intimation as 'information' under section 147(b) and issued a notice under section 148 on September 12, 1969, proposing to re-assess the income. The assessee applied to the High Court, which issued a writ of mandamus quashing the notice. The High Court granted a certificate for appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that two conditions are necessary for invoking section 147(b): (i) the officer must receive information after the original assessment, and (ii) in consequence of such information, he must have reason to believe that income has escaped assessment. The 'information' can be of facts or of law. The Court clarified that even if the information could have been obtained during the previous assessment through diligence, it still constitutes 'information' if it was not in fact obtained. The Audit Department is considered a proper machinery to scrutinize assessments and point out errors in law. Therefore, the ITO is not precluded from using the auditor's note as fresh 'information'. The Court applied the principle that 'information' means instruction or knowledge derived from an external source concerning facts or law. The Court found that the view taken by the Delhi and Kerala High Courts, which held similar audit notes as valid 'information', was correct and supported by its own previous decisions. Consequently, the Court allowed the appeal, holding that the ITO was entitled to reopen the assessment under section 147(b).

What were the issues?

1. Whether the intimation received by the Income-tax Officer from the Audit Department, pointing out an erroneous application of law, constitutes 'information' within the meaning of section 147(b) of the Income-tax Act, thereby enabling the reopening of assessment. Assessee's contention: The mere pointing out of an error in the application of law by the Auditor would not amount to 'information' under section 147(b), especially since the ITO was aware of the properties being self-occupied at the time of the original assessment. Revenue's contention: The intimation from the Audit Department, which is a proper machinery for scrutinizing assessments and pointing out legal errors, constitutes valid 'information' under section 147(b). The fact that the ITO could have discovered the error earlier does not preclude him from acting on subsequently received information. The revenue relied on decisions such as Commissioner of Income-tax, Gujarat v. A. Raman & Co. and other High Court judgments.

Which sections of the Income-tax Act were involved?

Section 147(b),Section 23(2),Section 148

AI-generated summary — verify with the full judgment below

.i R. K. MALHOTRA, l.T.O. GROUP CIRCLE II(l), AHMEDABAD v. KASTUR BHAI LALBHAI (H.U.F.)

August 11, 1977 (Y. Y, CHANDRACHUD AND P. S. KAILASAM, JJ.l 289 Income Tax Act, section I47(b), conditions for invoking-'lnfonnalion', scope of,-Wltether includes i11titnation fro111 the Audit Departtnent pointing out erroneous application of law. A B The respondent, H.U.F., is an assessee owning two houses.

During the assessment year 1965-66, the Income-tax Officer, in determining the annual valu- ation of its properties ur.der s. 23 (2) of the Income-ta·x Act, erroneously allowed C a deduction of municipal taxes amounting to Rs. 4,052/-.

Subsequently on scrutinising the assessments, the office of Con1ptroller and Auditor General of India pointed out that the deduction of municipal taxes in respect of self occupied properties was not admissible u /s. 23 (2).

The Income-tax Officer treated the intimation as 'information' \\-'ithin the meaning of s. 147 (b), and consequently propqsed to re-assess the respondent's income for 1965-66. On September 12, 1969, he issued a notice u/s. 148 requiring the respondent to file a return of his income.

On an application by the re

The order continues below.

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