2003 (7) TMI 17 - HC - Income Tax

Notice for reassessment reason for belief income escaping assessment - Assessing Officer could have issued the notice if there was prima facie such material before him to hold that an agreement as contemplated by section 53A of the Transfer of Property Act had come into existence for the assessment year 1991-92. There was, prima facie, no material at all before the Assessing Officer. It is true that if there was material, this court ordinarily would not exercise jurisdiction. However, in the instant case there was no material for the Assessing Officer to have reason to believe that the agreement to sell had been entered into in the assessment year 1990-91, which had escaped assessment. - therefore, the entire exercise of jurisdiction by the Assessing Officer is without jurisdiction. Once that be the case, the notice issued will have to be quashed

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Applicability of Section 2(47)(v) regarding the transfer of capital assets.
3. Jurisdiction of the Assessing Officer in issuing the notice under Section 148.
4. Availability and efficacy of alternative remedies.

Detailed Analysis:

1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961:
The petitioner filed its return of income for the assessment year 1991-92 on December 31, 1991, and subsequent returns for the assessment years 1992-93, 1993-94, and 1994-95. During the assessment proceedings for 1994-95, respondent No. 1 raised a query regarding the taxation of capital gains for the assessment year 1991-92, leading to a notice under Section 148 dated December 4, 1996. The petitioner contended that the reopening was erroneous and bad in law as it was based on a change of opinion rather than new information. The court noted that for reopening an assessment, the Assessing Officer must have valid "reasons to believe," which must be rational and have a direct nexus to the belief of income escaping assessment.

2. Applicability of Section 2(47)(v) regarding the transfer of capital assets:
The petitioner argued that the amendments to Section 2(47) by the insertion of sub-clauses (v) and (vi) were applicable only to transactions entered into after the assessment year 1988-89. The court examined whether the transaction fell within the ambit of Section 2(47)(v), which includes any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract under Section 53A of the Transfer of Property Act. The court found that the agreement of June 19, 1984, and the subsequent possession handed over on June 20, 1984, did not constitute a transfer under the amended definition, as the amendments were not retroactive.

3. Jurisdiction of the Assessing Officer in issuing the notice under Section 148:
The court evaluated whether the Assessing Officer had jurisdiction to issue the notice under Section 148. It was argued that the reasons recorded for reopening the assessment were not based on new information but on the same facts already on record. The court referred to various judgments, including Ganga Saran and Sons P. Ltd. v. ITO and Coca-Cola Export Corporation v. ITO, emphasizing that the belief entertained by the Income-tax Officer must be reasonable and based on relevant and material reasons. The court concluded that there was no new material before the Assessing Officer to justify the reopening of the assessment, rendering the notice under Section 148 invalid.

4. Availability and efficacy of alternative remedies:
The respondents contended that the petitioner had an alternative remedy available through the appellate process within the Income-tax Act. The court acknowledged that while the petitioner had filed an appeal against the assessment order, the petition was admitted, and the court had retained jurisdiction to decide the issue of the validity of the notices. The court cited the judgment in Coca-Cola Export Corporation v. ITO, where the Supreme Court held that the High Court erred in not exercising jurisdiction when the facts and law were clear. The court decided to exercise its jurisdiction to address the validity of the notices despite the availability of alternative remedies.

Conclusion:
The court found that the reopening of the assessment under Section 147 was without jurisdiction, as there was no new material to justify the belief that income had escaped assessment. The notices issued under Section 148 and subsequent orders were quashed. The rule was made absolute in terms of the petitioner's prayer clauses, with no order as to costs.

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