1964 (1) TMI 1 - HC - Income Tax

Invalid Notice under Indian Income-tax Act Dismissed by High Court for Lack of Reasonable Belief

The High Court of Kerala dismissed the appeal by the Income-tax Officer challenging the quashing of a notice issued under section 34 of the Indian ... Reassessment notice - two conditions that (a) that the ITO must have reason to believe that the income, profits or gains chargeable to income-tax has escaped assessment or have been under-assessed, and (b) that he must have also reason to believe that such under-assessment of the income has occurred by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the particular year - above conditions not satisfied - appeal dismissed Issues:1. Validity of notice issued under section 34 of the Indian Income-tax Act, 1922 for the assessment year 1952-53.Analysis:The High Court of Kerala heard an appeal by the Income-tax Officer challenging a decision that quashed a notice issued under section 34 of the Indian Income-tax Act, 1922. The notice was issued to the respondent after four years and before eight years from the end of the assessment year 1952-53. The key requirement for issuing such a notice is that the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment due to the assessee's failure to disclose material facts necessary for assessment.The court noted that the notice lacked the essential element of the Income-tax Officer having reason to believe that the under-assessment was due to the assessee's failure to disclose material facts. The court emphasized the importance of satisfying both conditions precedent for issuing a notice under section 34: first, that income has been under-assessed, and second, that such under-assessment is a result of the assessee's failure to disclose material facts necessary for assessment.Referring to a Supreme Court decision, the court reiterated that both conditions must be met for jurisdiction under section 34. Since the second condition was not satisfied in this case, the court ruled that the notice was invalid. Consequently, the court dismissed the appeal, ordering the appellant to pay the respondent's costs.The court did not delve into other points discussed in the judgment under appeal, as the failure to satisfy the essential condition rendered the notice invalid, leading to the dismissal of the appeal.