2002 (8) TMI 68 - HC - Income Tax

Reassessment - Failure To Disclose Fully And Truly - Issue of notice - The assessing authority while assessing the income of the assessee has scrutinised those facts and made the order of assessment. On the face of these facts we cannot reach the conclusion that the foundation is laid by the Department for exercising the powers under section 147/148 of the Income-tax Act 1961. The notice issued to the assessee by the Department and the further proceedings initiated exercising the powers under section 147/148 of the Act are quashed. - The appeals are dismissed.

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961.
2. Requirement of "reason to believe" for income escaping assessment.
3. Adequacy of material and evidence for initiating reassessment.
4. Disclosure of primary facts by the assessee.
5. Jurisdiction of the Assessing Officer in issuing reassessment notices.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961:
The court examined the validity of reassessment proceedings initiated by the Assessing Officer under Sections 147 and 148 of the Income-tax Act, 1961. The court noted that the Assessing Officer issued notices based on an external enquiry conducted by another authority. The court scrutinized whether the conditions for invoking Sections 147 and 148 were met, specifically focusing on whether there was a "reason to believe" that income had escaped assessment.

2. Requirement of "reason to believe" for income escaping assessment:
The court emphasized that for the Assessing Officer to exercise the power under Section 147, there must be a "reason to believe" that income chargeable to tax has escaped assessment. This belief must be based on relevant and material evidence. The court cited several Supreme Court judgments, including Calcutta Discount Co. Ltd. v. ITO and ITO v. Lakhmani Mewal Das, to underline that the reason must have a rational connection or relevant bearing on the formation of the belief.

3. Adequacy of material and evidence for initiating reassessment:
The court found that the Assessing Officer relied solely on a letter from the Commissioner of Income-tax, West Bengal, without conducting an independent enquiry. The letter mentioned a survey revealing that payments made to certain companies were not for actual services rendered but were accommodation entries. However, the court noted the absence of specific details, such as dates and bank transactions, to substantiate the claim that the payments were returned in cash. The court concluded that there was no prima facie evidence to support the belief that income had escaped assessment.

4. Disclosure of primary facts by the assessee:
The court highlighted that the duty of the assessee is to disclose fully and truly all primary facts necessary for assessment. Once this duty is fulfilled, the responsibility shifts to the Assessing Officer to draw the correct inferences. The court found that the assessee had disclosed all relevant material and information during the original assessment proceedings. The court reiterated that mere change of opinion by the Assessing Officer does not justify reopening the assessment.

5. Jurisdiction of the Assessing Officer in issuing reassessment notices:
The court examined whether the Assessing Officer had the jurisdiction to issue reassessment notices under the proviso to Section 147, which applies when reassessment is initiated after four years from the end of the relevant assessment year. The court found that the Assessing Officer did not have a valid reason to believe that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court concluded that the conditions for exercising jurisdiction under Section 147/148 were not satisfied.

Conclusion:
The court held that the reassessment proceedings initiated under Sections 147 and 148 of the Income-tax Act, 1961, were invalid as the Assessing Officer did not have a valid "reason to believe" that income had escaped assessment. The court quashed the notices issued to the assessee and dismissed the appeals filed by the Revenue. The court emphasized that the sufficiency of the reasons for reassessment must have a rational connection with the material facts and that the assessee had disclosed all necessary information during the original assessment.

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