Law:

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Section 147, read with section 28, of the Income-tax Act, 1961 - Income escaping assessment - Assessment year 1975-76 - Whether if audit points out certain facts which were not in knowledge of ITO when he made original assessment, it would constitute information under section 147(b) - Held, yes Section 45 of the Income-tax Act, 1961 - Capital gains - Assessable as - Assessment year 1975-76 - Whether loss on sale of brick kiln was a capital loss and it could not be set off against business income - Held, yes FACTS The assessee-company had a bichromate plant installed, of which, a furnace in the form of a kiln was a part. The depreciation was being allowed on the assets of the plant including kiln. Later a part of the plant was dismantled and the assets were sold piecemeal. In the assessment for the relevant assessment year, the ITO allowed loss on the sale of kiln. Subsequently, the ITO sought to reopen the assessment holding that the loss on the sale of kiln could not be allowed as it was a capital loss and not a revenue loss. On appeal, the Commissioner (Appeals) set aside the reassessment order by holding that the reassessment was on the basis of the report of the audit party and the same could not be regarded as information under section 147(b). The Tribunal set aside the order of the Commissioner (Appeals) on the ground that the ITO was not aware of the factual aspects about which the audit gave information and, hence, it was not a case of mere change of opinion. HELD If the audit points out certain facts, which were not in the knowledge of the ITO when he made the original assessment, it would constitute information under section 147(b). Since the audit report only brought certain facts to the knowledge of the ITO, it was certainly an information. Hence, there was no infirmity in the order of the Tribunal. The first question was answered in the affirmative. [Paras 3 and 4] As regards the second question, that question had also to be answered in the affirmative as the loss on the sale of brick kiln was certainly a capital loss and, hence, it could not be set off against the business income, but only against capital gains. [Para 5] CASES REFERRED TO Indian…

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