Supreme Court: Reopening assessment void, lack of evidence

The Supreme Court held that the Income Tax Officer lacked jurisdiction to reopen the assessment under section 147 as there was no concrete evidence to support the belief that income had escaped assessment due to the assessee's failure to disclose material facts. The notice issued under section 148 was deemed invalid and quashed, with no costs awarded to either party.

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Issues:
1. Reopening of assessment u/s 148 of the Income Tax Act, 1961 without proper jurisdiction and legality.

Judgment Details:
The petitioner, an assessee under the Income Tax Act, filed a return for the assessment year 1976-77, which was accepted by the Income-tax Officer. However, the ITO later issued a notice u/s 148 to reopen the assessment, alleging that income had escaped assessment. The petitioner sought clarification on the nature of the notice but received no response, leading to a challenge of the legality of the notice under Article 226 of the Constitution.

The respondent, through the department, admitted the facts but claimed that income had indeed escaped assessment due to certain financial discrepancies discovered post-assessment. The petitioner contended that the ITO lacked jurisdiction to reopen the assessment u/s 147 of the Act based on settled legal principles, citing relevant Supreme Court rulings.

The Supreme Court rulings highlighted that for the ITO to assume jurisdiction under s. 147, two conditions must be met: a belief that income has escaped assessment and a belief that such escapement is due to the assessee's failure to disclose material facts. The ITO's suspicion of fund diversion without concrete evidence did not fulfill these conditions, rendering the notice u/s 148 without jurisdiction and illegal.

The Court emphasized that the ITO must have valid reasons supported by new information to believe income has escaped assessment, which was not the case here. The lack of concrete evidence and reliance on post-assessment discoveries to issue the notice rendered it invalid. Consequently, the notice u/s 148 was deemed without jurisdiction and quashed, with costs not awarded to any party.

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