1989 (2) TMI 4 - SC - Income Tax

Reassessment notice under ss 147(b), 148, 149(1)(b) time-barred; full disclosure by assessee defeats extended limitation

SC held that the reassessment notice issued u/s 148, read with ss. 142(1) and 143(2), beyond four years from the end of the relevant assessment year, was ... Validity of notices issued u/s 148 read with sections 142(1) and 143(2) - beyond a period of four years - cash credit - reopening the assessment - failure on the part of the assessee to disclose fully and truly all material facts - genuineness of the transactions - HELD THAT:- This court, in Calcutta Discount Co. Ltd.[1960 (11) TMI 8 - SUPREME COURT (LB)], held that the expression 'material facts' used in clause (a) referred only to primary facts and the duty of the assessee was confined to disclosure of primary facts and he had not to indicate what factual or legal inferences should properly be drawn from primary facts. In the facts appearing on the record, we are in agreement with Mr. Manchanda that clause (a) of section 147 did not apply to the facts of the case as the alleged escapement of income from assessment had not resulted from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The notice in the instant case did not indicate whether it was a case covered by clause (a) or clause (b). On our finding that clause (a) was not invokable, the power under clause (b) could be called in aid under section 149(1)(b) of the Act within four years from the end of the relevant assessment year. Admittedly, the notice has been issued beyond a period of four years and, therefore, the notice itself was beyond the time provided under the law. On the facts appearing in the case, the High Court overlooked to consider this aspect of the matter. Since the proceedings before the High Court were under article 226 of the Constitution and not by way of reference under the Act, the jurisdiction of this court is not advisory and confined to the questions referred for opinion. On the facts, we are satisfied that the ends of justice require our intervention and we would accordingly allow the appeal of the assessee by holding that the notice under section 148 of the Act cannot be sustained in law for the reasons indicated above. Appeal by the assessee is allowed and the appeal by the Revenue is dismissed. The notice under section 148 of the Act is quashed. Issues:Jurisdiction of Income-tax Officer to reopen assessment based on cash credit entries under section 147 of the Income-tax Act of 1961 for the Assessment year 1965-66.Interpretation of section 147 clauses (a) and (b) in relation to the reopening of assessments.Validity of notice under section 148 of the Income-tax Act and the obligation of the assessee to furnish a fresh return.Application of legal precedents regarding the scope of assessment proceedings and the powers of the Income-tax Officer in reassessment cases.Validity of the notice under section 148 in relation to the time limit provided by law.Analysis:The judgment involves two appeals arising from the same judgment of the Allahabad High Court regarding the jurisdiction of the Income-tax Officer to reopen the assessment for the Assessment year 1965-66 based on cash credit entries. The High Court found that the notice under section 148 was within jurisdiction only in regard to one cash credit entry, while the other two transactions were held to be without jurisdiction under section 147 of the Income-tax Act.The legal issue discussed pertains to the interpretation of section 147 clauses (a) and (b) in the context of reopening assessments. The Revenue contended that once the High Court sustained the notice in respect of one transaction, it gave full jurisdiction to the Income-tax Officer to reopen the assessment and conduct fresh assessment proceedings, including examining other items within the legitimate ambit of the assessment process.The judgment references legal precedents from the Punjab High Court, Andhra Pradesh High Court, and previous Supreme Court decisions to support the position that once an assessment is reopened, the Income-tax Officer can consider additional items beyond the initial trigger for the reassessment. This establishes the principle that the reassessment process allows for a comprehensive review of the taxpayer's income and transactions.The judgment also addresses the validity of the notice under section 148 and the obligation of the assessee to furnish a fresh return. It highlights that the notice must be legally valid and issued within the prescribed time limit. The court emphasized that the duty of the assessee is to disclose primary facts, and the notice must indicate whether it falls under clause (a) or (b) of section 147 for proper application of the law.In conclusion, the Supreme Court allowed the appeal by the assessee, quashing the notice under section 148 of the Income-tax Act due to it being issued beyond the prescribed time limit and not meeting the requirements of clause (a) of section 147. The judgment reaffirms the importance of adhering to legal procedures and time limits in the assessment and reassessment processes under the Income-tax Act.