1997 (5) TMI 39 - HC - Income Tax

Account Books, Assessment Proceedings, Closing Stock, Failure To Disclose Material Facts, High Court, Jurisdiction To Reassess, Notice Of Reassessment, Reassessment Proceedings

Issues Involved: Jurisdiction of the authority issuing notice under section 148 of the Income-tax Act, legality and propriety of the issuance of notice under section 148, whether the issuance of notice was barred by limitation under section 149 of the Income-tax Act.

Issue 1: Jurisdiction of the Authority Issuing Notice under Section 148 of the Income-tax Act

The petitioner sought the quashing of a notice issued by the Inspecting Assistant Commissioner of Income-tax (Assessment), Ludhiana, under section 148 of the Income-tax Act, contending that the authority lacked jurisdiction to issue such a notice. The respondents argued that various orders issued under section 125 of the Income-tax Act conferred jurisdiction on the Inspecting Assistant Commissioner. Section 125 empowers the Commissioner of Income-tax to confer powers on the Inspecting Assistant Commissioner, and the proviso states that such orders can be issued by the Board (Central Board of Direct Taxes). Various orders (annexures R-3 to R-11) were issued to confer jurisdiction, with the last order dated December 20, 1979, conferring concurrent jurisdiction on the Inspecting Assistant Commissioner over cases assigned to the Income-tax Officer, Special Investigation Circle, Ludhiana. The court found that the Inspecting Assistant Commissioner had jurisdiction to issue the notice in question, and it was not obligatory to hear the assessee while conferring such jurisdiction. The court clarified that this was a conferment of jurisdiction, not a transfer of a case, and thus, the notice was issued by an authority with proper jurisdiction.

Issue 2: Legality and Propriety of Issuance of Notice under Section 148 of the Income-tax Act

The petitioner contended that the notice for reopening the assessment of income-tax for the year 1975-76 was issued without reasonable grounds and was barred by limitation. The respondents argued that the notice was issued under clause (a) of section 147 of the Income-tax Act, which pertains to reopening assessments if the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment due to the assessee's omission or failure to disclose fully and truly all material facts. The court noted that the petitioner had undervalued the closing stock of raw material and misstated the development rebate, which justified the reopening of the assessment. It was emphasized that mere production of account books does not necessarily amount to full disclosure as per Explanation 2 to section 147. The court referenced the case of Indo-Aden Salt Mfg. and Trading Co. P. Ltd. v. CIT, where it was held that mere production of evidence before the Income-tax Officer was not enough, and the assessee must bring certain aspects to the notice of the assessing authority. The court concluded that the issuance of the notice was not merely due to a change of opinion but was based on material evidence that necessitated further consideration.

Issue 3: Whether the Issuance of Notice was Barred by Limitation under Section 149 of the Income-tax Act

The petitioner argued that the issuance of the notice was barred by limitation under section 149 of the Income-tax Act. The court noted that the question of limitation could be addressed by the concerned assessing authority. The court referenced the case of K. M. Bansal v. CIT, where it was observed that the High Court in writ jurisdiction does not sit in judgment over the adequacy or sufficiency of reasons recorded for reassessment. The court also cited the case of M. M. Mahajan v. GTO, where it was held that the adequacy of notice under section 16(1)(a) of the Gift-tax Act in respect of reassessment could not be a matter of writ jurisdiction due to the availability of an adequate alternative remedy under the Act. Similarly, in V. K. Construction Works Ltd. v. CIT, it was held that the adequacy of notice under section 154 of the Income-tax Act could not be adjudicated in writ jurisdiction.

Conclusion

The court found no substance in the writ petition and dismissed it with costs, upholding the jurisdiction of the Inspecting Assistant Commissioner and the legality and propriety of the notice issued under section 148 of the Income-tax Act. The court also held that the question of limitation under section 149 could be addressed by the concerned assessing authority.

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