2004 (9) TMI 22 - HC - Income Tax

Notice issued under section 148 quashed by learned single judge - when a notice under section 148 of the Income-tax Act is issued to a noticee, he is to adopt the following path paved and recognised by the Legislature and the judicial decisions (1) File a return in response to the notice. (2) He can ask the assessing authority to furnish reasons for issuance of the notice (3) On receiving the reasons he may file objections thereto (4) After the passing of the order of reassessment under section 147, the assessee, if not satisfied with the order, can file an appeal before the appellate authority under section 246 thereof. - Having regard to the aforesaid discussion, we allow the revenue s appeal and set aside the order of the learned single judge. It is clarified that any observation made herein shall not be construed as expression of opinion on the merits of the case.

Issues Involved:
1. Jurisdiction to reopen assessment under Section 147 of the Income-tax Act, 1961.
2. Validity of notice issued under Section 148 after four years from the end of the relevant assessment year.
3. Requirement of full and true disclosure of material facts by the assessee.
4. Sufficiency of reasons for the belief that income has escaped assessment.

Issue-wise Detailed Analysis:

1. Jurisdiction to Reopen Assessment under Section 147:
The court analyzed whether the assessing authority had the jurisdiction to reopen the assessment under Section 147 of the Income-tax Act, 1961. It was observed that the assessing authority can reopen the assessment if it has "reason to believe" that income has escaped assessment due to the omission or failure of the assessee to disclose fully and truly all material facts necessary for assessment.

2. Validity of Notice Issued under Section 148 after Four Years:
The court examined the validity of the notice issued under Section 148 after four years from the end of the relevant assessment year. The learned single judge had quashed the notice on the ground that there was no satisfaction on the part of the assessing authority that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts. However, the appellate court held that the assessing authority had reason to believe that there was such a failure, as reflected in its communications dated December 5, 2003, and January 12, 2004.

3. Requirement of Full and True Disclosure of Material Facts by the Assessee:
The court discussed the requirement for the assessee to disclose fully and truly all material facts necessary for assessment. The court cited several precedents, including Sri Krishna (P) Ltd. v. ITO and Calcutta Discount Co. Ltd. v. ITO, to emphasize that mere production of account books does not necessarily amount to full disclosure. In the instant case, the assessing authority found that the assessee had not disclosed the lease agreement terms and conditions, which were material for the assessment. The court concluded that the assessee's failure to disclose these facts justified the reopening of the assessment.

4. Sufficiency of Reasons for the Belief that Income has Escaped Assessment:
The court held that the sufficiency of the reasons for forming the belief that income has escaped assessment is not for the court to judge. The reasons recorded by the assessing authority must have a nexus with the formation of belief for taking action under Section 147. The court found that the reasons provided by the assessing authority, such as the wrong claim of lease rent and failure to disclose the lease agreement details, were sufficient to form such a belief.

Conclusion:
The court allowed the appeal and set aside the order of the learned single judge, emphasizing that the observations made should not be construed as an opinion on the merits of the case. The court reiterated that the proper course of action for the noticee is to follow the procedural path laid out by the Legislature and judicial decisions, including filing a return in response to the notice, seeking reasons for the notice, filing objections, and, if necessary, appealing the reassessment order.

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