Notice under Section 148 of Income Tax Act 1961 for 1990-91 assessment year ruled invalid.

The court held that the notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 1990-91 was without jurisdiction and invalid. Consequently, the impugned notice and subsequent notices were set aside and quashed, with no order as to costs.

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Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for assessment.
3. Applicability of Section 14A of the Income Tax Act, 1961.
4. Compliance with the procedure laid down in GKN Driveshafts (India) Limited Vs. Income Tax Officer.

Issue-wise Detailed Analysis of the Judgment:

1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30.03.2001 issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 1990-91. The court examined whether the assessing officer had "reason to believe" that income chargeable to tax had escaped assessment. The court emphasized that there must be a live link between the reasons recorded and the formation of the belief that income chargeable to tax had escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The court found that the petitioner had disclosed all necessary details and that the assessing officer's belief was based on a change of opinion, which cannot be a ground for reopening a concluded assessment. Consequently, the court held that the issuance of the notice under Section 148 was without jurisdiction and thus illegal and invalid.

2. Alleged Failure of the Petitioner to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The court examined whether the petitioner had failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 1990-91. The petitioner had provided detailed information regarding the interest claimed as exempt under various clauses of Section 10(15)(iv) of the Act. The court noted that the petitioner had made it clear that the claimed amount represented the gross interest earned and had furnished all relevant details during the assessment proceedings. The court concluded that there was no failure on the part of the petitioner to disclose all material facts necessary for assessment, and therefore, the condition precedent for reopening the assessment was absent.

3. Applicability of Section 14A of the Income Tax Act, 1961:
Section 14A, inserted by the Finance Act, 2001 with retrospective effect from 01.04.1962, deals with the expenditure incurred in relation to income not includible in total income. The court noted that the Central Board of Direct Taxes (CBDT) had issued a circular directing that assessment proceedings which had attained finality before 01.04.2001 should not be reopened under Section 147 of the Act to disallow expenditure incurred to earn exempt income by applying Section 14A. The court found that the reopening of the assessment was not based on Section 14A, as clarified by the respondent in the affidavit. Therefore, Section 14A was not applicable in this case.

4. Compliance with the Procedure Laid Down in GKN Driveshafts (India) Limited Vs. Income Tax Officer:
The respondent raised a preliminary objection regarding the non-availing of the procedure laid down by the Supreme Court in GKN Driveshafts (India) Limited, which requires the assessee to file a return, seek reasons for the notice, and file objections to the reasons provided by the assessing officer. The court noted that the impugned notice and the reasons furnished preceded the judgment in GKN Driveshafts (India) Limited. Furthermore, the court held that the availability of an alternative remedy does not bar the exercise of writ jurisdiction when the authority seeks to assume jurisdiction it does not possess or acts arbitrarily. Given that the writ petition had been admitted for hearing and a long period had elapsed, the court found it unreasonable to relegate the petitioner to file objections before the respondent. The court, therefore, rejected the preliminary objection raised by the respondent.

Conclusion:
The court concluded that the issuance of the notice under Section 148 of the Income Tax Act, 1961, was without jurisdiction and invalid. Consequently, the impugned notice dated 30.03.2001 and the subsequent notices issued under Sections 143(2) and 142(1) of the Act were set aside and quashed. The rule was made absolute, and there was no order as to costs.

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