1988 (12) TMI 108 - HC - Income Tax

s.147 belief absent; s.148 reassessment notices and proceedings from Dec 1971-Mar 1972 quashed as invalid

HC held the reassessment proceedings and s.148 notices invalid and quashed. The court found the AO never formed his own requisite belief of escaped income ... Validity of the notices issued u/s 148 - Failure To Disclose Fully And Truly the material facts necessary for the assessment for that period or year - conditions precedent for the assumption of jurisdiction under section 147 - Hindu undivided family - advanced loans - escaped assessment - status of an individual - HELD THAT:- In the case of the late Lakshmi Narain for the assessment year 1955-56 and in obedience to the aforesaid direction, he submitted a proposal for initiating the proceedings under section 147 of the Act. I have, therefore, no doubt in my mind that the concerned Income-tax Officer never formed the requisite belief. In fact, his view as also the view of his predecessor-in-office was that the assessment could not be reopened and that the amount in question could not be brought to tax. He was, however, overruled by the Commissioner of Income-tax who directed him to submit a proposal and in obedience to the directions of the Commissioner of Income-tax, he submitted a proposal for initiating proceedings under section 147 of the Act. In these circumstances, I hold that the concerned Income-tax Officer never formed the requisite belief that there had been escapement of income or that income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment for that year. According to me, the conditions precedent for the assumption of jurisdiction under section 148 of the Act were not satisfied. The Income-tax Officer, contrary to his own belief, felt compelled to submit a proposal for initiation of proceedings under section 147 of the Act. The Commissioner of Income-tax and the Additional Commissioner of Income-tax always held a view to the contrary, and, therefore, the Income-tax Officer had no difficulty in following the line of reasoning advanced by them. He, therefore, recorded reasons in support of the proposal, even though he himself did not believe that those reasons justified the initiation of proceedings under section 147 of the Act. The requisite belief under section 147 of the Act must be that of the Income-tax Officer concerned and not of any other officer. If the Income-tax Officer does not form his own belief, but merely acts at the behest of any superior authority, it must be held that the assumption of jurisdiction under section 148 of the Act was bad for non-satisfaction of the conditions precedent. I am, therefore, of the view that the proceedings initiated pursuant to the proposals submitted by the Income-tax Officer dated December 4, 1971, and March 15, 1972, are bad in law. The notices issued under section 148 of the Act on March 27, 1972, are, for the same reason, bad in law and the proceedings taken pursuant thereto, are invalid and of no consequence. The notices dated March 27, 1972 (annexures-8 to 8-F), as also proceedings taken pursuant thereto are hereby quashed. Issues Involved:1. Validity of the notices issued u/s 148 of the Income-tax Act, 1961.2. Proper service of notices u/s 148.3. Approval of the Central Board of Direct Taxes for initiation of proceedings.4. Formation of belief by the Income-tax Officer regarding escapement of income.5. Compliance with conditions precedent for the assumption of jurisdiction u/s 147.Summary:Issue 1: Validity of the Notices Issued u/s 148The petitioners challenged the notices dated March 27, 1972, issued u/s 148 of the Income-tax Act, 1961, for the assessment year 1955-56, purporting to reopen the assessment of the late Lakshmi Narain. The court found that the Income-tax Officer (ITO) did not form the requisite belief independently but acted under the directions of the Commissioner of Income-tax. The ITO's own view was that the amount could not be brought to tax, but he submitted the proposal for reopening the assessment under the superior's instructions. Therefore, the assumption of jurisdiction u/s 148 was held to be bad in law, and the notices issued were quashed.Issue 2: Proper Service of Notices u/s 148The petitioners contended that the notices were not served in accordance with the law. The court found that the notices were initially attempted to be served by registered post but were returned unserved. Subsequently, service was effected by affixture. The court concluded that the respondents did attempt to serve the notices by registered post and, failing that, served them by affixture. Therefore, there was no illegality in the proceeding for want of proper service of notice.Issue 3: Approval of the Central Board of Direct TaxesThe petitioners argued that the approval of the Central Board of Direct Taxes (CBDT) was for reopening the assessment of the Hindu undivided family (HUF) and not the individual. The court found that initially, there was a mistake in the description of the status of the assessee as HUF instead of an individual. This mistake was later corrected, and fresh approval was obtained from the CBDT. The court held that the reasons recorded for the earlier proposal must be treated as reasons for the later proposal, and the approval granted was valid.Issue 4: Formation of Belief by the Income-tax OfficerThe court emphasized that the ITO must form his own belief that the conditions precedent for the assumption of jurisdiction u/s 147 are satisfied. In this case, the ITO did not form the requisite belief independently but acted under the directions of the Commissioner of Income-tax. The court held that the proceedings initiated were bad in law as the ITO did not form the requisite belief.Issue 5: Compliance with Conditions Precedent for Assumption of Jurisdiction u/s 147The court held that the conditions precedent for the assumption of jurisdiction u/s 147 were not satisfied as the ITO did not form the requisite belief independently. The proceedings initiated and the notices issued u/s 148 were quashed.Conclusion:The writ petition was allowed, and the notices dated March 27, 1972, and the proceedings taken pursuant thereto were quashed. The court found that the ITO did not form the requisite belief independently, and the assumption of jurisdiction u/s 148 was bad in law.