1969 (2) TMI 57 - HC - Income Tax

High Court invalidates income tax notices based on information from different year

The High Court of BOMBAY ruled in favor of the petitioners, a registered firm, in a case concerning the validity of notices issued under section 148 of ... Notice u/s 147 - reason recorded by revenue - validty of notice Issues:1. Validity of notices under section 148 of the Income-tax Act, 1961.2. Requirement of information for issuing a notice under section 148.3. Jurisdiction of the High Court in challenging the validity of a notice under section 147(b) of the Income-tax Act, 1961.4. Relationship between the information and the assessment year for issuing a notice under section 147(b).5. Criteria for granting a certificate under article 133(1)(b) and (c) of the Constitution for filing an appeal to the Supreme Court.Analysis:The judgment delivered by the High Court of BOMBAY addressed the validity of notices issued under section 148 of the Income-tax Act, 1961. The petitioners, a registered firm engaged in the manufacturing and marketing of bidis, had claimed deductions for advertisement expenses in their returns for the assessment years 1960-61 and 1962-63. The Income-tax Officer allowed these deductions but disallowed certain others, leading the petitioners to file appeals. Subsequently, the petitioners received notices under section 148 for the mentioned assessment years, citing reasons related to alleged fictitious expenses and inflated purchases. The petitioners challenged the validity of these notices on the grounds that the information relied upon by the Income-tax Officer should be obtained from an external source and should pertain to the specific year in question.The court referred to the Supreme Court's decision in Commissioner of Income-tax v. A. Raman and Co., emphasizing that the information forming the basis for issuing a notice under section 148 must be derived from an external source and must relate to the particular assessment year under consideration. The judgment clarified that the court's role in such cases is to ascertain whether the Income-tax Officer had valid information to believe that income chargeable to tax had escaped assessment. It was highlighted that challenging the inferences drawn by the Income-tax Officer based on the information is not within the purview of the court's review. The court also discussed the relevance of a Division Bench decision regarding the significance of a change of opinion versus new information in reassessment proceedings.The court concluded that the information used to issue the notices under section 148, which related to a different year, did not provide a valid basis for believing that income had escaped assessment in the years specified in the notices. It was held that the information must directly relate to the assessment year under consideration, even if it came to light during subsequent assessment proceedings. Therefore, the court ruled in favor of the petitioners, declaring the notices invalid and directing the respondent to bear the costs of the petition. Additionally, the court addressed an application for a certificate under article 133(1)(b) and (c) of the Constitution for appealing to the Supreme Court, stating that the case did not meet the criteria for such certification under the mentioned clauses.In summary, the judgment underscored the importance of valid external information directly linked to the specific assessment year in question for issuing notices under section 148 of the Income-tax Act, 1961. It highlighted the limitations of challenging the inferences drawn by the tax authorities based on the provided information and emphasized the need for adherence to legal procedures in reassessment proceedings.