1988 (12) TMI 108 - HC - Income Tax

Court Invalidates Income Tax Notices for Lack of Independent Belief Formation

Sheo Narain Jaiswal And Others Versus Income-Tax Officer And Others

The court quashed the notices issued under section 148 of the Income-tax Act, 1961, for the assessment year 1955-56, as the Income-tax Officer did not ... Failure To Disclose Fully And Truly, Reassessment 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.