1988 (2) TMI 40 - HC - Income Tax

Court quashes jurisdiction-lacking tax notices for assessment years; burden on Department to prove

The court held that the Income-tax Officer lacked jurisdiction in issuing notices under section 148 of the Income-tax Act for assessment years 1965-66 to ... Search And Seizure Issues:Validity of notices issued under section 148 of the Income-tax Act for assessment years 1965-66 to 1972-73; Jurisdiction of the Income-tax Officer in issuing the notices; Determination of capital gains prior to the land acquisition on March 9, 1971; Assessment of income for the assessment year 1972-73; Failure to disclose material facts for the assessment year 1972-73.Analysis:The judgment delivered by B. L. Hansaria J. addresses the challenge to the validity of notices issued under section 148 of the Income-tax Act for the assessment years 1965-66 to 1972-73. The petitioner questioned the jurisdiction of the Income-tax Officer in issuing these notices. It is established that when the jurisdiction of the Income-tax Officer is challenged, the burden lies on the Department to prove its existence, as per the Supreme Court decisions. If the Income-tax Officer lacks jurisdiction, the notice under section 148 can be quashed by the court under article 226 of the Constitution.The jurisdiction of the Income-tax Officer was contested based on the reasons recorded under section 148(2) of the Act. The reasons indicated that the assessee had earned short-term capital gains that had escaped assessment due to non-disclosure during the relevant assessment years. The trigger for issuing the notices was the requisition of land in 1964, which was later acquired in 1971. The crucial question was whether the assessee had earned any capital gains before the land acquisition in 1971.Referring to section 45 of the Act, it was established that capital gains arise upon the transfer of a capital asset in the previous year. Since the land was acquired in 1971, there was no transfer before that date, leading to the conclusion that no capital gains were earned by the assessee for the years 1965-66 to 1971-72. The classification of the land as agricultural or non-agricultural did not impact this determination.For the assessment year 1972-73, the issue revolved around whether income had escaped assessment due to the failure of the assessee to disclose material facts. Despite a notice challenging the exemption claimed by the assessee, subsequent correspondence and production of a certificate clarified the nature of the land. The assessment order did not treat the compensation received as income, indicating no failure to disclose material facts by the assessee.Ultimately, the court concluded that the Income-tax Officer lacked jurisdiction in issuing the notices under section 148 of the Act. Consequently, the notices were quashed, and the petitions were allowed.