1972 (7) TMI 13 - HC - Income Tax

Invalid Reassessments Quashed Under Article 226: Lack of Jurisdiction and Compliance

PK. Nair Versus Income-Tax Officer, A-Ward, Alwaye, And Others.

The High Court, in a writ petition under Article 226 of the Constitution, quashed the notices and assessments made under Section 147 of the Income-tax Act ... This petition under article 226 of the Constitution seeks to set aside notices, issued under section 148 - the grounds are that the Income-tax Officer had no reason to believe and had no material before him for that belief that the income amounting to Rs. 50,000 had escaped assessment or was likely to have escaped assessment for any of the years mentioned above and had, therefore, no jurisdiction to reopen the assessments that had been completed long years ago Issues Involved:1. Jurisdiction of the High Court under Article 226 of the Constitution to set aside notices issued under Section 148 of the Income-tax Act, 1961.2. Validity of the Income-tax Officer's belief that income had escaped assessment.3. Compliance with statutory requirements under Sections 147, 148, 149, and 151 of the Income-tax Act, 1961.4. Timeliness of the writ petition filed by the assessee.Issue-wise Detailed Analysis:1. Jurisdiction of the High Court under Article 226 of the Constitution:The court examined whether it had the jurisdiction to interfere with notices issued under Section 148 of the Income-tax Act, 1961, through a writ petition under Article 226 of the Constitution. The court cited the Supreme Court's decision in Commissioner of Income-tax v. A. Raman & Co., stating that the High Court has the power to set aside a notice if the condition precedent to the exercise of jurisdiction does not exist. The court can ascertain whether the Income-tax Officer had any information and whether it was reasonable to believe that income chargeable to tax had escaped assessment. However, the court cannot reappraise the evidence or decide whether the Income-tax Officer should commence reassessment proceedings.2. Validity of the Income-tax Officer's belief:The court examined whether the Income-tax Officer had reasonable grounds to believe that income had escaped assessment, justifying the reassessment proceedings. The court referred to several Supreme Court decisions, including Madhya Pradesh Industries Ltd. v. Income-tax Officer and S. Narayanappa v. Commissioner of Income-tax, which established that the belief must be held in good faith and have a rational connection to the formation of the belief. The court found that the Income-tax Officer had taken into account irrelevant and extraneous considerations, such as income from years before the relevant assessment years, to arrive at the figure of Rs. 2,54,740. This invalidated the officer's belief that income amounting to Rs. 50,000 or more had escaped assessment for each of the years 1950-51 to 1954-55.3. Compliance with statutory requirements:The court analyzed whether the statutory requirements under Sections 147, 148, 149, and 151 of the Income-tax Act, 1961, were met. The notices were issued after eight years from the end of the latest assessment year (1954-55), invoking Section 149, which requires that the escaped income must amount to or be likely to amount to Rs. 50,000 or more. The court found that the Income-tax Officer had not recorded valid reasons as required under Section 148(2) and that the Board had not been satisfied as required under Section 151. The court concluded that the requirements of Section 147(a) read with Section 149 had not been satisfied, and the Income-tax Officer had no jurisdiction to initiate reassessment proceedings.4. Timeliness of the writ petition:The court addressed the revenue's contention that the writ petition was filed nearly four years after the issuance of the notices and was therefore delayed. The petitioner argued that the Income-tax Officer had initially decided to drop the proceedings and only resumed them upon instructions from a superior officer. The court found that the petitioner had reasonable grounds to believe that the proceedings had been dropped and had approached the court promptly after receiving the notice under Section 143(2). The court rejected the argument that the petition was belated.Conclusion:The court quashed the notices (exhibits P-3, P-3(a), P-3(b), P-3(c), and P-3(d)) and the assessments made under Section 147 of the Income-tax Act for the years 1950-51 to 1954-55. The court allowed the writ application and directed the parties to bear their respective costs. The court emphasized that the assessments completed during the pendency of the writ application must depend on the court's decision, and if there was no jurisdiction to take action under Section 147, the entire proceedings and subsequent assessments were vitiated.