1981 PLP 237 (PTD)

(b) notwithstanding that there has been no omission or failure as mention ed in clause (a) on the part of the assessee, the income‑tax officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned ." In cases falling under section 147 (b), the expression "information" prescribes one of the conditions upon which a concluded assessment may be prescribes under that provision. It is an indispensable ingredient which must exist before the section can he availed of. What does "information" in sec tion 147 (b) connote? In Maharoj Kumar Kamal Singh v. C. I. T. (1959) 35 I T R 1 (S C) this Court construing the corresponding section 31(1) of the Indian I. T. Act, 1922, held the word "information" to mean not only facts or factual material but to include also information as to the true and correct state of the law and. therefore, information as to relevant judicial decisions. Thereafter, in C. I. T. v. Raman & Co. (1968) 67 I T R 11 (S C) the Court defined the express on "information" in sec tion 147 (b) of the I. T. Act, 1961, 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". That definition has been reaffirmed in subsequent cases, and with it as the point of departure we shall now proceed. In so for as the word "information" means instruction or knowledge concerning facts or particulars, there is little difficulty. By its‑ inherent nature, a fact has concrete existence, It influences the determination of an issue by the mere circumstance of the relevance. It requires no further authority to make it significant. Its quite essential value lies in its definitive vitality. But when "information" is regarded as meaning instruction or knowledge as to law the position is more complex. When we speak of "law" we ordinarily speak of norms or guiding principles having legal effect and legal consequences. To possess legal significance for that purpose, in must be enacted or declared by competent authority. The legal sanction verifying it imparts to it its force and validity and binding nature, Law may be statutory law or, what is popularly described as, judge‑made‑law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge‑made‑law emanates from a declaration or exposition of the content of a legal principle or the interpretation of a statute, and may in particular case extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi‑judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a Court or the order of a tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as a law. The forensic sub missions of professional lawyers and the criminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicises in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain. In that view, therefore, when section 147(6) of the I.‑T. Act is read as refer ring to "information" as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent legislature or a competent judicial or quasi‑judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability. In determining the status of an internal audit report, It is necessary to consider the nature and scope of the functions of an internal audit party. The internal audit organisation of the Income‑tax department was set up primarily for imposing a check over the arithmetical accuracy of the computation of income and the determination of tax, and no, because of the audit of Income‑tax receipts being entrusted to the Comptroller and Auditor -General of India from 1960, it is intended as an exercise in removing mistakes and errors in income‑tax record before they are submitted to the scrutiny of the Comptroller and Auditor‑General. Consequently, the nature of its work and the scope of audit have assumed a dimension co‑extensive with that of Receipt Audit (I). The nature and scope of Receipt Audit are defined by section 16 of the Comptroller and Auditor‑General's (Duties, Powers and Conditions of Service) Act, 1971(2). Under that section, the audit by the Comptroller and Auditor‑General is principally intended for the purpose of satisfying him with regard to the sufficiency of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. He is entitled to examine the accounts in order to ascertain whether the rules and procedures are being duly observed, and he is required, upon such examination, to submit a report. His powers in respect of the audit of income‑tax receipts and refunds are outlined in the Board's Circular No. 14/19/56‑1I dated July 28, 1460(3) Paragraph 2 of the circular repeats the provisions of section 16 of the Comptroller and Auditor‑General's (Duties, Powers and Conditions of Services) Act, 1971, and para. 3 warns that "the Audit Department should act in any way substitute itself for the revenue authorities in the performance of their statutory duties". Paragraph 4 declares: "(4) Audit does not consider it any part of its duty to pass in review (1) Internal Audit Manual, Vol. II, p. 1. (2) "

16. Audit on receipts of Union or of States.‑It shall be the duty of the Comptroller and Auditor‑General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules arid procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon." (3) Internal Audit Manual, Vol. II, p. 39. the judgment exercised or the decision taken in individual cases by officers entrusted with those duties, but it must be recognised that an examination of such cases miry be an important factor in judging the effectiveness of assessment procedure ...It is, however, to forming a general judgment rather than to, the detection of individual errors 8 of assessment, etc., that the audit enquiries should be directed. The detection of individual errors is an incident rather than the object of audit." Other provisions stress that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate to and sufficient. It is not intended that the purpose of audit should go any further. Our attention has been invited to certain provisions of Interns Audit Manual more specifically defining the functions of internal audit in the Income‑tax Department. While they speak of the need to check all assessments and refunds in the light of the relevant tax laws, the orders of the Commissioners of Income‑tax and the instructions of the Central Direct Taxes nothing contained therein can be construed as Board of on the contents of an internal audit report the status of a declarat ion conferring w binding on the I‑T. O. Whether it is the internal audit party of the Income-tax Department or an audit party the comptroller and of the Income‑tax Auditor‑General, they performed essentially administrative, or executive functions and cannot be attributed the powers of judicial supervision functions a quasi‑judicial acts of income‑tax authorities. The I‑T. Act does not contemplate such power in any internal audit organisation of the Income‑tax Department: it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does section 16 of the Comptroller and Auditor-General s (Duties, Powers and Conditions of Service) Act, 1971, envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law, and such pronouncement amounts to ""information" within the meaning of section 147(6) of the I: T. Act, 1961. But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the I:-T. O. to it. 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. While the law may be enacted or laid don only by a person or body with authority in that behalf, the knowledge or awareness of the taw may be communicated by anyone. No authority is required for the purpose. In the present case, an internal audit party of the Income‑tax Department expressed the view that the receipts from the occupation of the conference, expressed the view that the hall and rooms did not attract section 10 of the Act and that the assessment should have been made under section

9. While sections 9 and 10 can be described as law, the opinion of the audit party in regard to their application is not law. It is not declaration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the taw which escaped the notice of the I: T. O. constituted "information" within the meaning of section 147(6); the party which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot betaken into account by the I.‑T. O. In every case, the I.- T. O. must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably belief that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party it regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the I.‑T. O. Now, in the case before us, the I.‑T. O. had, when he made the original assessment, considered the provisions of sections 9 and

10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji & Co. v. C. I. T. (1975) 102 I T R 287 (S C) where x Bench of two learned Judges of this Court observed that a case where income had escaped assessment due to the "oversight inadvertence or mistake" of the I.‑T. O. must fall within section 34(1)(b) of the Indian I. T. Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels faster than the statute warrants to so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the I.‑T.O. discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and) no more) does not give him that power. That was the view taken by this Curt in Maharaj Kumar Komal Singh v. C. I‑T., C. I‑T. v. A. Raman & Co. and Bunkirpur Club Ltd. v. C. I.‑T. (1971) 82 I T R 831 (S C) and we do not believe that the laws has since taken a different course. Any observations in Kalydnji Mavji & Co. v. C. I. T. suggesting the contrary do not, we say with respect, lay down the correct law. A further submission raised by the revenue on section 147(b) of the Ac may be considered at this stage. It is urged that the expression "information" in section 147(b) refer to the realisation by the I.‑T. O. that he has committed as error when making the original assessment. It is said that, when upon receipt of the audit note the I:-T.O. discovers or realizes that a mistake has been committed in the original assessment, the discovery of the mistake would be "information" within the meaning of section 147(b). The submission appears to us inconsistent with the terms of section 147(b). Plainly, the statutory provision envisages that the I.‑T. O. must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words "reason to believe", and it follows from the "information" received by the I.‑T. O. The information is not the realisation, the information gives birth to the realisation. The recent decision of this Court in R. K. Malhotra, I T. A. v. Kasturbhai Lalbhai (1977) 109 I T R 537 (8 C) may be examined now. While making an assessment on a H. U. F., the I.‑T. O. allowed a deduction of municipal taxes in determining the annual value of two house properties occupied by assessee. Subsequently, the I.‑T. O. reopened the assessment on receipt of a report from the office of the Comptroller and Auditor‑General of India that on a true interpretation of section 23(2) of the I: T. Act, 1961, the deduction of municipal taxes was not admissible In the computation of the annual value of self‑occupied house properties. The assessee contended that the report did not constitute "information" within the meaning of section 147(b) of the Act, and the Gujarat High Court accepted the plea in the view that information as to law would consist of a statement by a person, body or authority competent and authorised to pronounce upon the law and invested with the authority to do so, and that the Audit Department was not such competent or authorised authority. On appeal by the revenue, a Bench of two learned Judges of this Court, although endorsing the principle enunciated by the High Court said that the Audit Department was the proper machinery to scrutinise assessments made by the I.‑T. O. and to point out errors of law contained therein, and the High Court had erred in taking the strict view which it did. The Court rested its decision on Assn. C. E. D. v. Nawab Sir Mir Oman All Khan Bahadur (1969) I T R 376 (S C), C, I. T. v. H. H. Smt, Chand Kanwarji (1972) 84 I T R 584 (Delhi), C. I‑T. v. Kelukutty (1972) 85 I T R 102 (Ker.) and Vashist Bhargava v. I. T.O. (19751) 99 I T R 148 (Delhi). In Asstt. CED v. Nawab Sir Mir Osman Ali Khan Bahadur (1969) 72 I T R 376 this Court held the opinion of the Central Board of Revenue as regards the correct valuation of securities for the purpose of estate duty to be "infor mation" with the meaning of section 59 of the E. D. Act, 1953, on the basis of which the C. E. D. was held entitled to entertain a reasonable belief that property assessed to estate duty had been undervalued. The circum stance that opinion of the Board was rendered in an appeal filed before it under the E. D. Act against the assessment by the Asst. C. E. D. was apparently not brought to the notice of this Court when it beard R. K. Malhotra, I T.O. v. Kasturbhai Lalbhai (1977) 109 I T R

537. The opinion of the Board represented its view as a quasi judicial authority possessing jurisdiction to lay down the law. Although the Board did not enhance the valuation of the securities in the appellate proceeding because of the argument advanced by the appellant none the less its observation amounted to ix formation as to the law. It was not a case where the Board was functioning His an extra judical authority, performing administrative or executive functions, and not competent or authorised to pronounce upon the law. The Delhi High Court in C. I. T. v. H. H. Smt. Chand Kanwarji (1972) 84 I T R 584 held that the scrutiny note of revenue audit constituted "information" within the meaning of sec tion 147(b) of the I. T. Act because the Comptroller and Auditor‑General of India was empowered by statute to scrutinise the proceedings of the income‑tax department and to point out defects and mistakes which adversely affected the revenue. The High Court considered that the view that information as to law could be gathered only from the decisions of judicial or quasi judicial authorities was unduly restrictive. In C. I.‑T v, Kalukutty (1972) 85 I T R 102 the Kerala High Court also regarded the note put up by audit as "information" within the meaning of S. 147(b) of the Act, but 'it appears to have assumed, without anything more that an audit note would fall within that expression. As regards Vashist Bhargava v. I. T. O. (1975) 99 I T R 148, the "information" consisted in a note of the revenue audit and the Ministry of Law that the payment of interest by assessee was in fact made to his own account in the provident fund and, therefore, in the law the money paid did not vest in the Government and, consequently, the original assessment was erroneous in so far as it allowed the deduction of the interest as expenditure made by the assessee. The Delhi High Court upheld the reassessment on the finding that the note of the revenue audit and the Ministry of Law had to be taken into account by the I.‑T. O., because in his executive capacity he had to be guided by the advice rendered by the Ministry of Law 'and he had to pay due regard to the note of the revenue audit because the officers of the audit Department were experts empowered to examine and check upon the work of the Income tax Officers. It seems to us that the considerations on which the Dhelhi High Court rested its judgment are' not correct. But the decision of the case can be supported on the ground that the basic information warranting the reopening of the assessment was the fact that the payment of interest was made to the provident fund account of the assessee himself. That the money so paid did not vest in the Government was a conclusion which followed automatically upon that fact, and no controversy in law could possibly arise on that point. On the considerations prevailing with us, we are of opinion that the view taken by the Delhi High Court and Kerala High Court in the aforementioned cases is wrong and we must, with great respect hold that this Court was in error in the conclusion reached by it in R. K. Malhotra, I. T. O. v. Kasturbhai Lalbhai. Our attention has been drawn to the further decision of Kerala High Court in Muthukrishna Reddiar v. C. I. T. (1973) 90 I T R 503 and the decisions of the Allahabad High Court in Raj Kumar Shrawan Kumar v. C. B. D. T. (1977) 107 I T R 570 and Elgin Mills Co. Ltd. v. I.‑T. O. (1978)111 I T R

287. The Kerala High Court merely followed its earlier judgment in C. Z‑T. v. Kelukutty and the Allahabad High Court was impressed by the same reasons substantially which persuaded the Delhi High Court and the Kerala High Court in the cases referred' to above. Therefore, whether considered on the basis that the nature and scope of the functions of the internal audit organisation of the Income‑tax Depart ment are co‑extensive with that of the Receipt Audit or on the basis of the provisions specifically detailing its functions to the Internal Audit Manual, we bold that the opinion of an internal audit party of the Income‑to Department on a point of law cannot be regarded as "information" within the meaning of section 197(b) of I.- T. Act, 1961. The question referred by the Income‑tax Appellate Tribunal is answered in the negative, in favour of the assessee and against the revenue. The assessee is entitled to one set of costs in these appeals. Question answered in the negative.