Notices under s.148 read with s.147(a) valid where joint-inspection report furnished relevant material for reasonable belief of escape

SC held that notices issued under s.148 read with s.147(a) were valid because a government department's joint-inspection report furnished relevant material permitting a reasonable belief that income had been under-assessed or escaped assessment. Whether the facts in the report are ultimately true is for inquiry in reassessment; at issuance stage the test is existence of relevant material. The High Court's contrary orders were set aside, the appeal was allowed, and reassessment proceedings were directed to continue; the Court declined to express any opinion on the merits.

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Issues: Validity of notices issued under section 148 read with section 147(a) of the Income-tax Act, 1961

Analysis:
The appeal before the Supreme Court challenged the judgment of the Division Bench of the Calcutta High Court, which dismissed a letters patent appeal filed by the Revenue against the judgment of a single judge. The single judge had allowed the writ petition by the respondent-assessee, contesting the validity of notices issued under section 148 read with section 147(a) of the Income-tax Act, 1961, for the assessment years 1961-62, 1963-64, and 1965-66. The notices were based on a letter from the Chief Mining Officer indicating under-reporting of coal raising and a shortage of surface coal stock by the colliery owned by the assessee. The Income-tax Officer issued the notices after recording reasons as required by law. The assessee challenged the notices through a writ petition in the High Court of Calcutta, leading to the present appeal.

The Supreme Court emphasized that for a notice under section 148 and section 147(a) to be valid, the Income-tax Officer must have a reason to believe that income has been under-assessed or escaped assessment due to the assessee's failure to disclose all material facts necessary for assessment. The court clarified that the formation of belief by the Income-tax Officer is subjective and must be based on relevant material. In this case, the letter from the Chief Mining Officer, reporting under-reporting of coal raising at the colliery, was considered relevant material for forming the belief necessary for issuing the notices. The letter detailed a joint inspection conducted by government officers, indicating discrepancies in the reported coal raising figures by the assessee. The court noted that the truth of the facts in the letter could be challenged during further enquiry, but at the notice issuance stage, the key question was whether there was sufficient material for a reasonable belief to justify the notices.

After considering arguments from both parties, the Supreme Court concluded that the letter from the Chief Mining Officer constituted relevant material upon which the Income-tax Officer could have reasonably formed the belief necessary for issuing the notices. As a result, the court allowed the appeal, set aside the High Court's orders, and directed the reassessment proceedings to continue in accordance with the law. The court refrained from expressing any opinion on the merits of the case, emphasizing the need for expeditious reassessment without awarding costs.

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