1996 (7) TMI 2 - SC - Income Tax

Validity of s.148/s.147 notice upheld where ITO had reasonable grounds to believe income escaped assessment due to omissions

SC upheld validity of the s.148/s.147 notice, finding the ITO had reasonable grounds to believe income had escaped assessment due to omission or failure ... Validity of notice under Section 148 read with Section 147 - Reopening of assessment - omission or failure to disclose material facts - bogus claims - income from undisclosed sources - income chargeable to tax has escaped assessment - HELD THAT:- It is not alleged by the assessee that the Income-tax Officer had not checked up or tallied the names of the alleged lenders for both the assessment years and that he merely went by the fact that there were unsecured hundi loans for both the assessment years. In the absence of any such allegation --- which allegation, if made, could have afforded an opportunity to the Income-tax Officer to answer the said averment --- we must presume that the Income-tax Officer did find that a large number of alleged lenders who were found to be bogus during the assessment year 1960-61 were also put forward as lenders during the assessment year 1959-60 as well. Evidently, this is what he meant in the context, when he spoke of 'similar loans' being noticed for the year in question as well. In such a situation, it is impossible to say that the Income-tax Officer had no reasonable ground to believe that there has been no full and true disclosure of all material facts by the assessee during the relevant assessment year and that on that account, income chargeable to tax had escaped assessment. In this case, it is shown to us that ten persons [who are alleged to have advanced loans to the assessee in a total sum of Rs. 3,80,000 out of the total hundi loans of Rs. 8,53,298] were established to be bogus persons or mere name-lenders in the assessment proceedings relating to the subsequent assessment year. Does it not furnish a reasonable ground for the Income-tax Officer to believe that on account of the failure --- indeed not a mere failure but a positive design to mislead --- of the assessee to disclose all material facts, fully and truly, necessary for his assessment for that year, income had escaped assessment. We are of the firm opinion that it does. It is necessary to reiterate that we are now at the stage of the validity of the notice under section 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income-tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. In ITO v. Mewalal Dwarka Prasad [1989 (2) TMI 4 - SUPREME COURT], this court held that if the notice issued under section 148 is good in respect of one item, it cannot be quashed under article 226 on the ground that it may not be valid in respect of some other items. We need not, however, dilate on this aspect for the reason that no argument has been urged before us to the effect that since the notice under section 148 is found to be justifiable in respect of some loans disclosed and not with respect to other loans, it is invalid. Appeal fails and is dismissed with costs. Issues: Whether the notice issued under section 148 read with section 147 of the Income-tax Act, 1961, reopening the assessment for the relevant year was valid on the ground that the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment due to omission or failure to disclose fully and truly all material facts.Analysis: The statutory framework requires that before reopening an assessment under section 147 the Income-tax Officer must have reason to believe that income has escaped assessment and that such underassessment occurred by reason of omission or failure to disclose fully and truly all material facts; section 148(2) requires recording of reasons. A false or bogus disclosure of primary facts does not constitute a full and true disclosure. Material showing that certain purported lenders were bogus in the subsequent year and that the same persons appeared in the return for the year sought to be reopened gives a rational nexus and constitutes material from which the requisite belief could be formed. At the stage of validity of notice, the court's role is limited to seeing whether there was material on record from which the Income-tax Officer could reasonably form the requisite belief, not to decide the ultimate correctness of the reassessment.Conclusion: The notice under section 148/147 was valid because the Income-tax Officer had recorded reasons and possessed material (including evidence that certain lenders were bogus in the subsequent year and were common to the year in question) giving him reason to believe that there was an omission/failure to disclose fully and truly all material facts and that income had escaped assessment. The appeals are dismissed.