2010 (9) TMI 380 - HC - Income Tax

Court Validates Assessing Officer's Notices for Escaped Income; Time Limits Not Barred; Joint Commissioner's Approval Required

The court upheld the validity of the Assessing Officer's reasons for issuing notices for various assessment years, finding that income had indeed escaped ... Assessment of escaped income - The petitioner's land was acquired by the Meerut Development Authority (the MDA) under the Land Acquisition Act in the year 1987 - The income arising out capital gains by compulsory acquisition was also never disclosed to the Income Tax Department by the petitioner - The counsel for the petitioner submitted that: The capital gain was to be calculated in accordance with sub-section 5 of section 45 (see below)2 {section 45(5)} of the Act; Under section 45(5) (a), the capital gain was to be calculated with reference to the compensation received at the first instance Notice barred by time - In case the income escapes assessment, then the limitation for issuing notice, is provided in the first proviso to section 147 and section 150 - In this case, no earlier assessment was made and as such the first proviso to section 147 has no application - There is material to believe that income had escaped assessment and the notices are not invalid on this account - The notice is valid - the writ petition No. 54 (Tax) of 2004 is dismissed and Writ Petition No. 991 (Tax) of 2007 and 994 (Tax) of 2007 are allowed Issues Involved:1. Validity of the Assessing Officer's reasons to believe that income chargeable to tax had escaped assessment.2. Whether the notices are barred by time.3. Requirement for notices to be issued by the Joint Commissioner.4. Validity of notices for assessment years 1989-90 to 1994-95 due to lack of satisfaction by the Joint Commissioner.5. Applicability of section 151 of the Income Tax Act to cases covered under section 150.6. Validity of the satisfaction/sanction of the Additional Commissioner for AY 1998-99 for issuing notice.Detailed Analysis:1. Valid Reasons to Believe Income Escaped Assessment:The court examined the reasons for issuing notices for AYs 1998-99, 1994-95, and 1989-90 to 1993-94. The reasons were interconnected but distinct for each year. For AY 1998-99, the Supreme Court's decision on 10.4.1997 enhancing compensation to Rs. 175/- per square yard was a valid reason. For AY 1994-95 and AYs 1989-90 to 1993-94, the petitioner received enhanced compensation and interest on 16.8.1993, and the income was assessable in the year of receipt. The court held that the Assessing Officer had valid reasons to believe that income had escaped assessment and the notices could not be quashed on this ground.2. Notices Not Barred by Time:The limitation for issuing notices is provided under section 147 and section 150. For AY 1998-99, the notice issued on 15.10.2003 was within the six-year limit under section 149. For AYs 1989-90 to 1994-95, the notices issued on 1.5.2006 were beyond six years but were covered under section 150, where no limitation is provided. The court held that the notices were not barred by time.3. Requirement for Notices to be Issued by Joint Commissioner:Section 151(2) requires the Joint Commissioner to be satisfied on the reasons recorded by the Assessing Officer, not to issue the notice himself. The court clarified that the Assessing Officer could issue the notice if the Joint Commissioner was satisfied with the reasons recorded. The notices issued by the Assessing Officer were valid as long as the Joint Commissioner was satisfied.4. Validity of Notices for AYs 1989-90 to 1994-95:The notices for these years were issued without the satisfaction of the Joint Commissioner, as indicated by the scoring out of the relevant paragraph in the notices. The court held these notices invalid but allowed the authorities to issue fresh notices in accordance with the law.5. Applicability of Section 151 to Cases Covered Under Section 150:The court disagreed with previous judgments suggesting that section 151 does not apply to cases under section 150. It held that section 151 applies to all cases where income has escaped assessment, including those covered under section 150. Therefore, the satisfaction of the Joint Commissioner is required even for notices issued under section 150.6. Validity of Satisfaction/Sanction for AY 1998-99:The court found that the satisfaction of the Additional Commissioner for AY 1998-99 was valid and not mechanical. The notices for AY 1998-99 were upheld.Conclusions:1. There was material to believe that income had escaped assessment, and the notices were not invalid on this account.2. The notices were not barred by time.3. Notices need not be issued by the Joint Commissioner but require his satisfaction on the reasons recorded by the Assessing Officer.4. The satisfaction of the Additional Commissioner for AY 1998-99 was valid.5. Section 151 applies to cases covered by section 150.6. Notices for AYs 1989-90 to 1994-95 were invalid due to lack of satisfaction by the Joint Commissioner but may be reissued in accordance with the law.Final Orders:1. Writ Petition No. 54 (Tax) of 2004: Dismissed. Notice under section 148 for AY 1998-99 upheld. The petitioner may file an application and appear before the Assessing Officer.2. Writ Petition Nos. 991 (Tax) of 2007 and 994 (Tax) of 2007: Allowed. Notices for AYs 1989-90 to 1994-95 quashed, but authorities may issue fresh notices in accordance with the law.