2004 (8) TMI 86 - HC - Income Tax

Notice u/s 148 - The formation of the required opinion and belief by the Assessing Officer is a condition precedent. Without such formation he will not have jurisdiction to initiate proceedings under section 147. The fulfilment of this condition is not a mere formality but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings - Thus it is well settled that the reason to believe under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Hence notice issued under section 148 and the entire proceedings taken pursuant thereto are wholly without jurisdiction and hereby quashed.

Issues Involved:
1. Validity of the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961.
2. Service of notice under section 148 of the Income-tax Act, 1961.
3. Jurisdiction of the Assessing Officer to initiate proceedings under section 147.
4. Timeliness and delay in challenging the notices under section 148.
5. Maintainability of the writ petition under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961:
The court examined whether the initiation of reassessment proceedings under section 147 was valid. The primary condition for such proceedings is that the Assessing Officer must have "reason to believe" that any income chargeable to tax has escaped assessment. The court emphasized that this belief must be reasonable, based on relevant and material reasons, and held in good faith. The court scrutinized the report of the income-tax inspector dated April 20, 1999, which was the basis for initiating the proceedings. The report did not provide any concrete material to form a reasonable belief that income had escaped assessment. The court cited the Supreme Court's decision in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603, where it was held that vague and indefinite reasons do not fulfill the requirements of section 151(2) of the Act. Consequently, the court found the reassessment proceedings to be invalid and without jurisdiction.

2. Service of notice under section 148 of the Income-tax Act, 1961:
The petitioners argued that the notices under section 148 were not served upon them, making the reassessment proceedings void. The court noted that the notices were issued within the period of limitation provided under section 149 of the Act and cited the Supreme Court's decisions in R.K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163 and CIT v. Major Tikka Khushwant Singh [1995] 212 ITR 650, which clarified that the issuance of notice within the limitation period is sufficient. The court concluded that the notices were issued within the prescribed period of limitation.

3. Jurisdiction of the Assessing Officer to initiate proceedings under section 147:
The court reiterated that the jurisdiction to initiate proceedings under section 147 hinges on the Assessing Officer having "reason to believe" that income has escaped assessment. This belief must be based on relevant material and not be arbitrary or irrational. The court found that the report of the income-tax inspector did not provide any substantial material to form such a belief. The court cited several precedents, including Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1, which established that the belief must have a rational connection and relevant bearing on the formation of the belief. The court held that the absence of such material vitiated the jurisdiction of the Assessing Officer to initiate the proceedings.

4. Timeliness and delay in challenging the notices under section 148:
The respondents argued that the petitioners could not challenge the notices at such a belated stage. The court, however, held that questions of jurisdiction and the validity of proceedings can be raised at any stage, as they go to the root of the matter. The court cited the Full Bench decision in Laxmi Narain Anand Prakash [1980] 46 STC 71 and the Supreme Court's decisions in Calcutta Discount Co. Ltd. [1961] 41 ITR 191 and Madhya Pradesh Industries Ltd. [1965] 59 ITR 637, which allowed scrutiny of the reasons recorded by the Assessing Officer under Article 226 of the Constitution. The court found that the delay did not preclude the petitioners from challenging the notices.

5. Maintainability of the writ petition under Article 226 of the Constitution of India:
The court addressed the maintainability of the writ petition under Article 226, emphasizing that the remedy of writ is discretionary. The court cited several Supreme Court decisions, including Harbanslal Sahnia v. Indian Oil Corporation Ltd. [2003] 2 SCC 107, which held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is discretionary. The court concluded that the writ petition was maintainable as it involved questions of jurisdiction and the validity of the proceedings.

Conclusion:
The court quashed the notices issued under section 148 of the Act for the assessment years 1993-94 and 1994-95 and the entire proceedings taken pursuant thereto as being wholly without jurisdiction. The writ petition was allowed, and the parties were directed to bear their own costs.

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