2005 (3) TMI 84 - HC - Income Tax

Income escaping assessment notice u/s 148 - order of provisional attachment under section 281B of the Act pending proceedings of the reassessment notices - before such action of reopening the assessment is taken, requirement of law such as the live link or close nexus between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee should be satisfied - Otherwise, the power conferred under section 147 would amount to arbitrary and unreasonable exercise. Hence, while making it clear that the authorities do have the power to reopen the assessment under section 147, the materials relied on for such purpose should not be vague but should be definite, specific, relevant and reliable Held htat notice u/s 148 and proceedings of provisional attachment u/s 281B are quashed

Issues Involved:
1. Legality of the notices issued under section 148 of the Income-tax Act, 1961.
2. Legality of the provisional attachment orders issued under section 281B of the Income-tax Act, 1961.
3. Jurisdiction and scope of the respondent to initiate reassessment proceedings.
4. Compliance with the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO.
5. Predetermination of the issue by the respondent.

Detailed Analysis:

1. Legality of the notices issued under section 148 of the Income-tax Act, 1961:
The petitioners challenged the notices dated November 18, 2004, issued under section 148 of the Income-tax Act, proposing to reassess their income for the assessment year 2000-01. The core contention was that the notices lacked the "reason to believe," a condition precedent under section 148 read with section 147 of the Act. The court emphasized that the reasons to believe must have a "live link or close nexus" with the material coming to the notice of the Income-tax Officer and formation of the opinion, and such material should not be vague but definite, specific, relevant, and reliable.

2. Legality of the provisional attachment orders issued under section 281B of the Income-tax Act, 1961:
The petitioners also challenged the provisional attachment orders dated November 25, 2004, issued under section 281B of the Act. These orders were consequential to the reassessment notices and were claimed to be arbitrary and unreasonable. The court noted that the provisional attachment orders were issued without properly addressing the objections raised by the petitioners, thereby vitiating the proceedings.

3. Jurisdiction and scope of the respondent to initiate reassessment proceedings:
The petitioners restricted their submissions to the scope and jurisdiction of the respondent to issue notices under section 148 of the Act. They argued that the respondent lacked jurisdiction as the notices did not satisfy the condition precedent of "reason to believe." The court reiterated that the reasons must have a rational connection with the formation of belief and should not be merely a pretence or subjective satisfaction.

4. Compliance with the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO:
The petitioners highlighted that they had requested the respondent to furnish the recorded reasons for reopening the assessment, as mandated by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO. The respondent provided the reasons, and the petitioners submitted their objections. However, the respondent failed to consider these objections before concluding the reassessment proceedings, thereby violating the principles laid down by the Supreme Court.

5. Predetermination of the issue by the respondent:
The petitioners pointed out that the respondent had predetermined the issue by stating in the proceedings dated February 10, 2005, that it was a fit case for levy of penalty under section 271(1)(c) of the Act, even before considering the objections. The court found this to be an error apparent on the face of the record, indicating a lack of fair consideration of the petitioners' objections.

Conclusion:
The court quashed the notices dated November 18, 2004, issued under section 148 of the Act, and the provisional attachment orders dated November 25, 2004, issued under section 281B of the Act. The court held that the respondent failed to comply with the legal requirements and principles laid down by the Supreme Court and other High Courts. However, the court granted liberty to the respondent to issue fresh notices for reopening the assessment, if so advised, and directed that the petitioners' objections be considered strictly in accordance with the law.

Disposition:
The writ petitions were allowed, and the impugned notices and provisional attachment orders were quashed. No costs were awarded, and the connected miscellaneous petitions were closed.

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