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C.I.T. Agra v. Ved Prakash Agarwal - INCOME TAX REFERENCE No. 138 of 1988 [2007] RD-AH 7872 (27 April 2007)


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Court No. 37


      Commissioner of Income-Tax, Agra  


 Shri Ved Prakash Agarwal, Aligarh


Hon'ble Sushil Harkauli, J.

Hon'ble Ajai Kumar Singh, J.

We have heard learned counsel for the Income Tax Department.

Apparently a completed assessment was re-opened under Section 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 under Section 254 of the Act was moved by the assessee upon which the Tribunal stated as follows :

"At the time of passing 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 law. 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 facts and in the circumstances of the case the Appellate Tribunal was justified in recalling the order of the Tribunal dated 25.1.1985.

2.  Whether on the facts 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 assessment 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 assessing 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 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 recorded "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 under Section 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 (2005) 277 ITR 265 (All).

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 under Section 148 for re-opening the assessment.

Reference answered accordingly.

Dt 27.04.2007



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