2003 (7) TMI 58 - HC - Income Tax

Notices issued under section 148 validity - no full and true disclosure of all material facts by the assessee - notice under section 148 was valid - notices issued for reopening of the assessments are upheld.

Summary

Issues Involved:
1. Validity of the notices issued under section 148 of the Income-tax Act, 1961.
2. Adequacy and disclosure of material facts by the assessee.
3. Jurisdiction of the Assessing Officer to reopen assessments.
4. The effect of subsequent appellate decisions on the validity of reopening proceedings.

Detailed Analysis:

1. Validity of the notices issued under section 148 of the Income-tax Act, 1961:
The appeal was directed against the judgment and order dated May 16, 1989, which quashed the notices issued under section 148 of the Income-tax Act, 1961. The learned judge allowed the writ petition on the ground that no materials were produced justifying the issuance of the notices, and thus, the notices were issued without any materials and without the formation of opinion.

2. Adequacy and disclosure of material facts by the assessee:
The respondent received six notices dated March 19, 1977, for the assessment years 1968-69 to 1973-74, alleging that income chargeable to tax had escaped assessment. The respondent's case was that they had disclosed all material facts truly and fully during the original assessment, including the agreement with ECL Sales Corporation. However, the appellants contended that the respondent-company did not disclose all relevant facts and that the selling agency commission was allowed without proper scrutiny. The court noted that mere production of the sole selling agency agreement did not constitute full and true disclosure of all material facts necessary for assessment.

3. Jurisdiction of the Assessing Officer to reopen assessments:
The appellants argued that the reasons recorded by the Assessing Officer for reopening the assessments were valid and relevant. The court emphasized that the belief must be bona fide and have a reasonable nexus with the issues involved in the assessment. The appellants submitted that the Income-tax Officer and the Commissioner of Income-tax had applied their minds before forming the opinion and recording reasons for reopening the assessments. The court held that the reopening proceedings were validly initiated and could not be struck down solely on the ground that the issue was later decided in favor of the assessee.

4. The effect of subsequent appellate decisions on the validity of reopening proceedings:
The respondent contended that the reopening of assessments was of no consequence since the Income-tax Appellate Tribunal had allowed the claim of the respondent-company regarding the selling agency commission, and the Department did not prefer any appeal against the Tribunal's order. The court rejected this contention, stating that the validity of initiation of proceedings must be judged based on the reasons recorded on the date of assumption of jurisdiction. The court cited several judicial pronouncements supporting the view that subsequent appellate decisions do not affect the validity of the notices if the reopening proceedings were validly initiated.

Conclusion:
The appeal was allowed, the judgment of the learned single judge was set aside, and the writ petition was dismissed. The court upheld the notices issued for reopening the assessments, emphasizing that the powers under section 147 are wide but conditioned by certain jurisdictional facts. The court concluded that there had not been full and true disclosure of all material facts by the assessee, and the reopening proceedings were validly initiated. There was no order as to costs.