LOT Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961)41 ITR 191 (SC) Reoppening of Assessment Section-147(9)

 

Leading Case: Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC)

Facts of the Case:

• Calcutta Discount Co. Ltd. was engaged in trading shares and securities.
• It filed its income tax return, disclosing all material facts necessary for the assessment.
• The Income Tax Officer (ITO) later attempted to reopen the assessment under Section 34 of the Indian Income Tax Act, 1922 (which corresponds to Section 147 of the Income Tax Act, 1961), claiming that income had escaped assessment due to non-disclosure of full facts.
• The company challenged this reopening, arguing that all material facts had already been disclosed.

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Issues before the Supreme Court:

1. Whether the reopening of assessment was justified under Section 34 (now Section 147 of the Income Tax Act, 1961)?
2. Whether a mere change of opinion by the Assessing Officer (AO) could justify reopening?
3. What constitutes "failure to disclose material facts" under tax law?

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Law Laid Down by the Supreme Court:

• Duty of the Assessee:
  The assessee is required to disclose fully and truly all primary facts necessary for assessment. However, the assessee is not responsible for drawing legal inferences from those facts.

• Scope of Reopening under Section 34 (Now Section 147):

  • The reopening of assessment must be based on a failure to disclose primary facts and not on a mere change of opinion by the Assessing Officer.
  • If the assessee has disclosed all material facts, then the burden shifts to the Assessing Officer to make proper legal inferences.

• Limitations on Reopening:

  • If the ITO wants to reopen the case, he must prove that the income escaped assessment due to the assessee's failure to disclose material facts.
  • A mere reassessment based on different interpretation or change of opinion is not permissible.

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Final Judgment:

• The Supreme Court ruled in favor of Calcutta Discount Co. Ltd., holding that the reopening of the assessment was invalid because:
  • The assessee had fully and truly disclosed all primary facts.
  • The ITO could not reopen the case just because he later changed his opinion on the legal implications of those facts.

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Impact of the Judgment:

1. Protection of Assessees: This case provided a safeguard against arbitrary reopening of assessments.
2. Limits on Assessing Officers: It restricted the AO from using Section 147 as a tool to revisit completed assessments without strong legal grounds.
3. Judicial Precedent: The judgment is frequently cited to challenge unjustified reassessments.

This case continues to be a guiding principle in reopening of assessments under Section 147 of the Income Tax Act, 1961.