1997 (12) TMI 98 - HC - Income Tax

Tax reassessment notices u/s148 after full disclosure, challenged as change of opinion; notices quashed for no 'reason to believe'.

Reassessment notices under s.148 were challenged as being issued without 'reason to believe' under s.147 and amounting to a mere change of opinion. The HC ... Legality of notices issued under section 148 - reason to believe - change of opinion - income has 'escaped assessment' within the meaning of section 147 - HELD THAT:- The documents and assessment orders referred to earlier make it clear that the assessee placed the entire facts before the assessing authority. That authority took note of all the income accrued during the year 1988-89 and passed the orders of assessments. Thereafter, the impugned notices have been issued. The short question is whether the issue of these notices is sustainable or not. Where the action of an executive authority is without jurisdiction and is likely to subject one to lengthy proceedings and unnecessary harassments, it is well-settled, the High Courts are to issue appropriate orders to prevent such consequences (vide Calcutta Discount Company Ltd. [1960 (11) TMI 8 - SUPREME COURT (LB)]. Before issuing notice under section 148 of the Income-tax Act, the officer should have reason to believe. The said reason to believe cannot be reason to suspect. It is settled law that reason to believe can never be the outcome of a change of opinion. It is essential that before any action is taken by the Officer, the Officer should substantiate his satisfaction. Reasons recorded in the instant case, which were quoted earlier, do not bring out any ground, making out an objective satisfaction arrived at by the officer. No reason other than those recorded by the officer therein can possibly be urged to sustain his action either. Since the entire facts relating to the income were made known to the assessing authority and no objective reason has been given for issuing a notice under section 148, we are constrained to quash the impugned notices issued to the applicants in these special civil applications. Thus, the petitions are allowed and notices, issued to the applicants herein are quashed. Issues involved: Validity of notices issued under section 148 of the Income-tax Act for the assessment year 1988-89.Summary:The petitioners, who were partners of a firm, challenged the notices issued under section 148 of the Income-tax Act for the assessment year 1988-89, claiming that income had 'escaped assessment.' The petitioners received amounts from the Daman Ganga Dam arbitration, which they considered as capital receipts not liable to tax. The Assessing Officer, however, assessed the entire amount received on account of the Daman Ganga Dam Construction in the firm's name. The petitioners contended that the reasons for issuing the notices were based on a change of opinion and lacked objective satisfaction. The Income-tax Officer's belief that income had escaped assessment did not mention a relevant judicial decision. The court held that the notices were unsustainable as the assessing authority was aware of all facts, and no valid reason was provided for issuing the notices. The court quashed the notices, ruling in favor of the petitioners.The court noted that the assessing authority should have a valid reason to believe before issuing notices under section 148 of the Income-tax Act, emphasizing that reason to believe cannot be a result of a mere change of opinion. The court highlighted the importance of objective satisfaction by the officer before taking any action. Since the reasons provided did not establish an objective basis for issuing the notices and all relevant facts were disclosed to the assessing authority, the court found the notices to be unjustifiable and quashed them. The court emphasized the need for a valid and objective reason to support the issuance of such notices to prevent unnecessary harassment and prolonged legal proceedings.In conclusion, the court allowed the petitions and quashed the notices dated March 13, 1997, issued to the applicants, without imposing any costs. The court's decision was based on the lack of a valid reason to believe that income had escaped assessment, as required under the Income-tax Act, leading to the notices being deemed unsustainable and subsequently annulled.