1974 (6) TMI 12 - HC - Income Tax

Court Upholds Reopening of Assessment on Failure to Disclose Facts

Biju Patnaik Versus Income-Tax Officer, Central Circle, Cuttack

The court held that the Income-tax Officer had valid reasons to believe there was a failure to fully disclose material facts, justifying the reopening of ... Assessment Proceedings, Hundi Loans, Original Assessment, Reassessment Proceedings, Writ Petition Issues Involved:1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.2. Compliance with the conditions precedent under Section 147(a) of the Income-tax Act, 1961.3. Sufficiency and adequacy of the material leading to the formation of belief by the Income-tax Officer.4. Evaluation of the confessional statements and their impact on the reopening of the assessment.5. Conduct and procedure followed by the Income-tax Officer.Detailed Analysis:1. Validity of the Notice Issued Under Section 148:The primary issue was whether the notice dated 26th February 1966, issued under Section 148 of the Income-tax Act, 1961, for reopening the assessment for the year 1958-59, was lawfully and validly issued by the Income-tax Officer. The court examined whether the conditions precedent for reopening an assessment under Section 147(a) were satisfied.2. Compliance with Conditions Precedent Under Section 147(a):The court outlined that before the Income-tax Officer can assume and exercise jurisdiction to issue the notice under Section 148, the conditions laid down in Section 147(a) must be fulfilled. These conditions are:- The Income-tax Officer must have reason to believe that the income, profits, or gains chargeable to income-tax have been under-assessed.- The Income-tax Officer must have reason to believe that such under-assessment was due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year.3. Sufficiency and Adequacy of the Material Leading to the Formation of Belief:The court emphasized that the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. However, it is open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The court is concerned with whether there is any material that can legitimately lead to the formation of a prima facie belief on the part of the Income-tax Officer. The recorded reasons indicated that two of the alleged hundi creditors confessed that the loans shown to the assessee were bogus, which constituted sufficient material for the Income-tax Officer to form a belief that the income of the assessee had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts.4. Evaluation of the Confessional Statements:The court evaluated the confessional statements produced and found that they substantially supported the recorded reasons of the Income-tax Officer. The confessional statements indicated that the loans to the assessee were not genuine, providing sufficient material for the Income-tax Officer to form a belief that the income had escaped assessment due to the assessee's failure to disclose all material facts. The court noted that the Income-tax Officer had applied his mind to the confessional statements and concluded that the loans were bogus, which justified the reopening of the assessment.5. Conduct and Procedure Followed by the Income-tax Officer:The court observed that the conduct of the Income-tax Officer in writing a letter to the assessee after the assessment was concluded and before issuing the notice was unusual. However, these particular features were deemed of no material consequence in deciding the question involved. The court criticized the Income-tax Officer for not properly setting out the reasons in the affidavit, which should have contained all necessary relevant materials and facts to assist the court.Conclusion:The court held that the Income-tax Officer had prima facie reason to believe that there had been a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The recorded reasons and confessional statements provided sufficient material to justify the reopening of the assessment. The application was dismissed, and the rule was discharged. The operation of the order was stayed for six weeks, and the interim order continued in the meantime.