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Issues involved: Challenge to notices issued u/s 148 of the Income-tax Act, 1961 for assessment years 1987-88 and 1988-89.
Assessment Year 1987-88: The petitioner claimed deduction u/s 32AB and deposited Rs. 35 lakhs with the Industrial Development Bank of India. The Assessing Officer issued notices u/s 148 read with section 147, requiring the petitioner to furnish returns. The petitioner alleged lack of jurisdiction for initiating action u/s 147. The Assessing Officer believed the income had escaped assessment due to the claim under section 32AB. The court emphasized the need for the Assessing Officer to have a valid reason to believe income has escaped assessment, which should be based on relevant material. The court found the belief of the Assessing Officer to be without proper grounds and contrary to the law, leading to the quashing of the notice. Assessment Year 1988-89: Similar to the previous year, the petitioner deposited a sum but claimed deduction under section 32AB at a restricted amount. The Assessing Officer issued notices u/s 148 read with section 147, requiring the petitioner to furnish returns. The petitioner challenged the jurisdiction of the Assessing Officer to initiate action u/s 147. The court reiterated the importance of the Assessing Officer having a valid reason to believe income has escaped assessment, supported by relevant material. In this case, the court found the belief of the Assessing Officer to be unfounded and not in line with the law, resulting in the quashing of the notice. The court highlighted the necessity for the Assessing Officer to have a valid reason to believe income has escaped assessment before issuing notices u/s 148. The subjective satisfaction of the Assessing Officer should be based on relevant material and not arbitrary grounds. The court emphasized that the Assessing Officer's belief must be demonstrable and founded on existing circumstances relevant to the inference. The Assessing Officer must record reasons before issuing notices to safeguard against arbitrary actions. In this case, the court found the Assessing Officer's belief to be without proper grounds and not in accordance with the law, leading to the quashing of the notices.
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