1984 (6) TMI 18 - HC - Income Tax

Invalid notice issued under section 148 of I.T. Act quashed for lack of jurisdiction and reasonable grounds.

The court found the notice issued by the ITO under section 148 of the I.T. Act, 1961, for reopening the assessment year 1972-73 to be illegal and lacking ... Income escaping assessment - Reopening of assessment under section 148 pursuant to section 147(a) - Reason to believe - Duty of assessee to disclose primary facts - Requirement to record reasons before reopening - Scope of judicial review of Income-tax Officer's beliefIncome escaping assessment - Reopening of assessment under section 148 pursuant to section 147(a) - Reason to believe - Requirement to record reasons before reopening - Duty of assessee to disclose primary facts - Scope of judicial review of Income-tax Officer's belief - Validity of the notice dated March 18, 1981 issued under section 148 for reopening the assessment for the assessment year 1972-73 - HELD THAT: - The Court held that jurisdiction to reopen under section 147(a)/148 requires both a bona fide 'reason to believe' that income has escaped assessment and that such escapement is due to the assessee's omission to make a return or to disclose fully and truly all material facts. The belief must be honest, reasonable and based on material bearing on non-disclosure, not on mere suspicion, gossip or obsession. The ITO must record reasons before initiating proceedings and the Commissioner must be satisfied where reopening is after four years. In the present case no reasons were recorded; the sole basis was a departmental valuer's estimate obtained 31/2 years after renovation and the ITO's apparent suspicion about the assessee's ownership. There was no evidence of failure by the assessee to disclose primary facts at the original assessment; production of primary facts is for the ITO to draw inferences, not for the assessee to advise. To the limited extent permitted, courts may examine whether the reasons for the ITO's belief have a rational connection with the alleged non-disclosure. Applying these principles, the Court found the preconditions for jurisdiction under section 147(a)/148 absent and the notice to be illegal and without jurisdiction.The notice dated March 18, 1981 issued under section 148 for reopening assessment year 1972-73 is quashed and respondents are restrained from proceeding thereunder.Final Conclusion: The petition is allowed: the s.148 notice dated March 18, 1981 reopening assessment year 1972-73 is quashed; respondents restrained from acting on it; parties to bear their own costs and any security deposit to be returned on verification. Issues Involved:1. Legality of the notice issued u/s 148 of the I.T. Act, 1961.2. Jurisdiction of the ITO to reopen the assessment for the year 1972-73.3. Compliance with the conditions u/s 147(a) for reopening assessment.Summary:1. Legality of the notice issued u/s 148 of the I.T. Act, 1961:The petitioner, an income-tax assessee, challenged the notice dated March 18, 1981, issued u/s 148 of the I.T. Act, 1961, for reopening his assessment for the assessment year 1972-73. The petitioner argued that the notice was illegal and without jurisdiction as it did not state any reasons for reopening the assessment. The ITO did not supply the reasons despite repeated requests from the petitioner.2. Jurisdiction of the ITO to reopen the assessment for the year 1972-73:The court examined whether the ITO had legal justification to issue the notice of reassessment u/s 148. It was noted that the ITO must have reason to believe that income chargeable to tax had escaped assessment due to the assessee's omission or failure to disclose fully and truly all material facts necessary for the assessment. The court emphasized that both conditions must co-exist to confer jurisdiction on the ITO. The ITO's belief must be based on reasonable grounds and not mere suspicion or opinion.3. Compliance with the conditions u/s 147(a) for reopening assessment:The court highlighted that the duty of the assessee is to make a true and full disclosure of primary facts at the time of the original assessment. The ITO must draw the correct inference from these facts. A mere change of opinion by the ITO does not justify reopening the assessment. The court found that the ITO's sole basis for issuing the notice was the report of the Departmental valuer, which was obtained 3 1/2 years after the completion of the renovation work and was merely an estimate. There was no evidence to show that there had been a failure to disclose material facts necessary for the assessment.Conclusion:The court concluded that the notice issued by the ITO u/s 148 was illegal and without jurisdiction as the necessary preconditions to confer jurisdiction were absent. The petition was allowed, and the impugned notice dated March 18, 1981, was quashed. The respondents were restrained from taking any proceedings under the said notice. The parties were directed to bear their respective costs.