The Judgment of the Court was delivered by

Hazra, J.:— On the application of the assessee under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter called “the Act”), the Appellate Tribunal referred the following questions to this court:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the case of the assessee-company was rightly reopened under section 34(1)(b) of the Indian Income-tax Act, 1922?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,157 claimed by the assessee under the head ‘Rights, Concessions and Privileges’ was not allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, the same being an item of expenditure of a capital nature?”

2. The facts will appear from the statement of the case. The assessee-company is a public limited company. The assessment year is 1959-60 and the relevant accounting period ends on June 30, 1958. The assessment of the company was completed by the Income-tax Officer under section 23(3) of the Act by the order dated December 14, 1959. Some time thereafter, a notice under section 34(1)(b) of the Act was issued by the Income-tax Officer in order to consider certain items of expenditure debited to the profit and loss account. One of the items was Rs. 13,157 under the head “Rights, Concessions, Facilities and Privileges”. In response to the said notice the assessee-company filed a return. In the course of assessment proceedings the Income-tax Officer asked the assessee-company to give details of the items of Rs. 13,157 written off every year from the amount of rights, concessions, etc., standing in the balance-sheet and to show cause why the claims as made in the profit and loss account be not disallowed being a portion of the capital expenditure. The assessee-company filed a written reply to the same. It was urged before the Income-tax Officer that the amount of Rs. 13,157 which was written off under items of “rights, concessions and privileges” was in respect of the annual charge for the use of the waters of the river, “Wardha” for the purpose of the factory. It was mentioned that the sum of Rs. 13,157 was out of a total sum of Rs. 5 lakhs which was paid to the Government representing in reality commutation of a series of annual payments for the use of the river water for the aforesaid purposes by way of water rate or tax leviable under the Government Irrigation Act, 1931. This was to be an operational expenditure pertaining to the year of account like any other operational expenses and was, according to the submissions, admissible item of a revenue expenditure and was not in the nature of capital expenditure. The Income-tax Officer, however, held that the said amount was not exclusively paid for the use of the water and could not be said to be an annual charge with reference to the use of water or services taken in connection with the business of the company. According to the Income-tax Officer the amount was clearly of a capital nature and he disallowed the same.

3. An appeal was preferred to the Appellate Assistant Commissioner against the same and the reopening of the assessment under section 34(1)(b) by the Income-tax Officer was also challenged. The Appellate Assistant Commissioner, however, confirmed the action of the Income-tax Officer in taking recourse to section 34(1)(b) of the Income-tax Act. In his opinion, the Income-tax Officer had reason to believe that the items were not considered by his predecessor in office at the time of original assessment. He also held that it was not a case of mere change of opinion by the successor of the Income-tax Officer. He confirmed the disallowance of Rs. 13,157 as the same was not in the nature of revenue expenditure allowable under section 10(2)(xv) being clearly of a capital nature. The assessee filed an appeal against the order of the Appellate Assistant Commissioner. In the assessee's appeal the first point was about the reopening of the matter under section 34(1)(b) of the Act. According to the assessee, all the necessary facts were placed before the Income-tax Officer at the time of the original assessment. Necessary account books and the details of office and other expenses wherein the entry appeared as the first entry under the head “Process and conversion” were shown to the Income-tax Officer. There was no information which had reached the Income-tax Officer subsequent to the assessment of the original assessment so as to enable him to have reason to believe that something was left over or wrongly taken so as to reopen the assessment. The departmental representative, on the other hand, placed reliance on the fact that the original order of the Income-tax Officer did not show that he had at all applied his mind to this item or that he considered the item in question. Reliance was also placed on the Explanation to section 34 of the Act.

4. The Tribunal held that the Income-tax Officer was justified in reopening/the assessment under section 34 of the Act.

5. Mr. K. Ray, the learned advocate for the assessee-applicant, invited our attention to ground No. 1 taken by the assessee before the Appellate Assistant Commissioner, viz., that the Income-tax Officer erred in law in holding that the assessment in question could be reopened and a revised assessment made under section 34 and that the notice issued under section 34(1)(b) was bad in law as no income had been under-assessed. Mr. Ray contended before us that the jurisdiction of the Income-tax Officer to reassess income arises if he had in consequence of information in his possession reason to believe that the income chargeable to tax has escaped assessment. According to Mr. Ray, the Income-tax Officer had no material on record for invoking jurisdiction under section 34 and he relied on the decision of the Supreme Court in the case of Commissioner Of Income Tax, Gujarat v. A. Raman & C. [1968] 67 ITR 11 SC. section 34(1)(b) provides as follows:

“34. Income escaping assessment.—(1) If—

(b) notwithstanding that there has been no omission or failure as mentioned 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, profits or gains chargeable to income-tax have escaped assessment for any year or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal/officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection:…”

In the instant case the assessee-company was assessed by a former Income-tax Officer and another Income-tax Officer sought to reopen the assessment made by his predecessor in office under section 34(1)(b). He can give notice under section 34(1)(b) if in consequence of information in his possession, he has reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been underassessed or assessed at too low a rate or have been made the subject of excessive relief under this Act.

6. Now, what is the information in his possession? What is the basis of his reason to believe that income has escaped assessment? The Income-tax Officer cannot seek to justify the reopening of the assessment under section 34(1)(b) merely on the ground of change of opinion. The Supreme Court in the recent case of Commissioner of Income-tax v. Dinesh Chandra H. Shah held at page 371 of the report:

“It is well settled by now…. that mere change of opinion could not be a valid ground for reopening the assessment under section 34(1)(b) of the Act.”

7. In another case decided on 12th April, 1971, Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147, 153 SC., the Supreme Court held as follows:

“There can be no manner of doubt that the words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour.”

8. Nothing has been disclosed which was relevant for the purpose of finding whether the Income-tax Officer had any reason to believe that the income, profits or gains of the assessee chargeable to income-tax had escaped assessment.

9. Mr. B.L Pal appearing for the department invited our attention to the order of the Income-tax Appellate Tribunal at page 50 of the paper book which is as follows:

“The argument of the learned counsel for the assessee that there was no information before the Income-tax Officer is also not correct because the Income-tax Officer himself after going through the records found out the case and in that event he would be justified to take recourse to section 34 for reopening the case.”

10. I am not satisfied that there was any material before us to show that in consequence of any information in his possession, the Income-tax Officer had any reason to believe that the income, profits or gains of the assessee chargeable to income-tax had escaped assessment.

11. Under the circumstances, I answer question No. 1 in the negative and against the revenue.

12. In view of answer to question No. 1 as above, question No. 2 need not be answered as, in our view, the assessment was not rightly reopened under section 34(1)(b).

13. There will be no order as to costs.

Sabyasachi Mukharji, J.:— I agree with the answers given by my learned brother. The main question in this case is whether the sum of Rs. 13,157 which was shown by the assessee under the head “rights, concession and privileges” was allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, being an item of revenue expenditure. It has been so allowed though not specifically mentioned in the original assessment tor the assessment year 1959-60. In the assessment which was reopened under section 34(1)(b) of the Indian Income-tax Act, 1922, the Income-tax Officer disallowed this item on the ground that this expenditure was of a capital nature. The controversy in this case was whether the reopening was justified. As mentioned hereinbefore, the reopening was under clause (b) of section 34(1) of the Indian Income-tax Act, 1922. It was contended before the Tribunal by the assessee that the reopening was unjustified as there was no information. The Tribunal in its order stated that the Income-tax Officer at the time of the original assessment did not question this amount and had allowed it as a deduction relating to the “process and conversion” in the mills department. Thereafter, the Tribunal observed:

“Later on, it was noticed that this amount of Rs. 13,157 did not relate to/any such process and conversion expenditure and that the assessee itself came forward with the explanation that the said amount was paid on account of securing rights, concessions, facilities and privileges for the use of the river water.”

14. It appears that there is no material to indicate when this was noticed and how. When the Tribunal referred to the fact that the assessee came with an explanation that the amount was paid on account of securing “rights, concessions, facilities and privileges”, that explanation was as a result of the enquiries made after the reopening and not prior to the reopening. It is necessary that for reopening under clause (b) there must be information before the reopening is made. Such information must come into the possession of the department subsequent to the original assessment and the information may be of law or fact. It is not necessary for us to go into the question whether the information should be derived from external sources and to what extent. The principles under which the reopening can be done under clause (b) of section 34(1) of the Indian Income-tax Act, 1922, are well settled by the decisions of the Supreme Court. Reference may be made to the decisions of the Supreme Court in the case of Maharaj Kumar Kamal Singh v. Commissioner of Income-tax and in the case of Commissioner of Income-tax v. A. Raman and Co. If it is a new look at the old facts unprovoked by any knowledge of any fact or law coming into the possession of the department subsequent to the original assessment either from records or from any direction or decision it would be nothing but mere change of opinion and such a change of opinion would not be justified under clause (b) of section 34(1) of the Indian Income-tax Act, 1922. Such a thing appears to have happened in this case. For the aforesaid reasons question No. 1 must be answered in the negative and in that view question No. 2 really becomes academic and need not be answered.

15. I agree with the order for costs proposed by my learned brother.