1959 (5) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the notices issued under Section 34(1A) of the Indian Income-tax Act, 1922.
2. Constitutionality of Sections 5(7A) and 34(1A) of the Indian Income-tax Act.
3. Entitlement of the petitioner to inspect the documents and reasons recorded by the Income-tax Officer.
4. Justiciability of the Income-tax Officer's "reason to believe" under Section 34(1A).

Issue-wise Detailed Analysis:

1. Legality of the notices issued under Section 34(1A) of the Indian Income-tax Act, 1922:
The petitioner challenged the notices issued under Section 34(1A) for the assessment years 1940-41 to 1945-46, arguing that the Income-tax Officer did not have sufficient grounds to believe that the income had escaped assessment. The court noted that the Income-tax Officer must have "reason to believe" that income, profits, or gains chargeable to income-tax had escaped assessment and that the income, profits, or gains likely amounted to Rs. 1,00,000 or more. The court found that the Income-tax Officer had recorded his reasons and obtained the necessary sanction from the Central Board of Revenue, satisfying the conditions precedent for issuing the notices. Therefore, the court held that the notices were valid and proper.

2. Constitutionality of Sections 5(7A) and 34(1A) of the Indian Income-tax Act:
The petitioner initially argued that Sections 5(7A) and 34(1A) were ultra vires the Constitution, particularly Articles 14 and 19. However, the Supreme Court had already held these sections intra vires, and the court reiterated this position, dismissing the petitioner's argument on constitutional grounds.

3. Entitlement of the petitioner to inspect the documents and reasons recorded by the Income-tax Officer:
The petitioner sought to inspect the order of satisfaction of the Central Board of Revenue, the material on which the Income-tax Officer based his belief, and the basis for estimating the escaped income. The Income-tax Officer refused to disclose the reasons or grant inspection of the records, arguing that such disclosure would be detrimental to the Income-tax Department and frustrate the proceedings. The court agreed, stating that at this stage, the petitioner was not entitled to inspect the reasons recorded by the Income-tax Officer. The court emphasized that disclosing the reasons before the books and documents were produced could lead to the removal or alteration of evidence, defeating the purpose of the reassessment.

4. Justiciability of the Income-tax Officer's "reason to believe" under Section 34(1A):
The court addressed whether the Income-tax Officer's "reason to believe" was justiciable. It was argued that the expression "reason to believe" meant that the Income-tax Officer's belief must be based on objective facts, and the court could compel the officer to disclose the reasons and materials upon which this belief was based. The court concluded that while the matter was justiciable, the reasons should be disclosed to the court but not necessarily to the petitioner at this stage. The court reviewed the reasons and the sanction of the Board of Revenue and found them sufficient, noting that disclosing them to the petitioner could be prejudicial to the proceedings.

Conclusion:
The court dismissed the application, holding that the notices issued under Section 34(1A) were valid and proper, the petitioner was not entitled to further disclosure at this stage, and the Income-tax Officer had reasonable grounds to believe that the income had escaped assessment. The rule was discharged, and interim orders, if any, were vacated, with no order as to costs.