2007 (8) TMI 323 - HC - Income Tax

Notice under Section 148 invalid where AO relied solely on uncorroborated survey information and failed to record reasons

Commissioner of Income-tax Versus Smt. Paramjit Kaur

HC held that the notice under s.148 for reassessment was invalid because the AO initiated proceedings solely on uncorroborated information from a survey ... Validity of notice under section 148 for reassessment proceedings - power and jurisdiction of the Assessing Officer for making an assessment or reassessment of escaped income - HELD THAT:- It is undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The Assessing Officer had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had thus acted only on the basis of suspicion and it cannot be said that the same was based on the belief that the income chargeable to tax had escaped income. The Assessing Officer has to act on the basis of 'reasons to believe' and not on 'reasons to suspect'. The Tribunal had, thus, rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 of the Act for reassessment proceedings was not valid. Thus, the question of law referred to this court is answered against the Revenue and in favour of the assessee. Issues:Validity of notice under section 148 for reassessment proceedings.Analysis:The judgment delivered by the High Court addressed the issue of the validity of a notice under section 148 of the Income-tax Act, 1961 for reassessment proceedings. The case involved the initiation of reassessment proceedings by the Assessing Officer based on information received from the survey wing of the Income-tax Department. The Assessing Officer issued a notice under section 148 after recording reasons and framed the assessment at an income of Rs. 83,040. The first appellate authority upheld the validity of the notice but set aside the assessment, remitting the matter for a fresh assessment. The Tribunal, in its order, held that the Assessing Officer had failed to incorporate material and his satisfaction for reopening the assessment, deeming the reassessment invalid.The court analyzed the provisions of sections 147 and 148 of the Income-tax Act, which define the power and jurisdiction of the Assessing Officer for making assessments or reassessments of escaped income. Section 147 empowers the Assessing Officer to assess or reassess income if there are reasons to believe that income has escaped assessment. The court emphasized that the Assessing Officer must have sufficient material before him to assume jurisdiction for reassessment, and the reasons must show due application of mind. The court highlighted that the Assessing Officer cannot act on mere suspicion but must have a genuine belief based on material connecting to the escapement of income.Referring to the case of ITO v. Lakhmani Mewal Das, the court reiterated that there must be a rational connection between the material available and the belief of income escapement. The court emphasized that the Assessing Officer's reasons for forming the belief must be held in good faith and not be a mere pretense. In the present case, the court noted that the Assessing Officer had initiated reassessment proceedings solely based on information from the survey circle without examining or corroborating it. The court concluded that the Assessing Officer had acted on suspicion rather than genuine belief, emphasizing the importance of acting on 'reasons to believe' rather than 'reasons to suspect.'In the final analysis, the court ruled in favor of the assessee, stating that the Assessing Officer had failed to incorporate material and satisfaction for reopening the assessment, rendering the notice under section 148 invalid. The court's decision was based on the lack of genuine belief and proper application of mind by the Assessing Officer in initiating the reassessment proceedings, highlighting the importance of adhering to the legal requirements for reassessment under the Income-tax Act.