1996 (7) TMI 138 - HC - Income Tax

Assessment Proceedings, Capital Asset, Failure To Disclose Material Facts, Reason To Believe, Reassessment Proceedings

Issues Involved:
1. Validity of notices issued under section 148 of the Income-tax Act, 1961.
2. Whether the conditions precedent for assumption of jurisdiction under section 147(a) were satisfied.
3. The role and admissibility of a valuation report obtained under section 55A in reopening completed assessments.
4. Compliance with sections 147, 148, and 151 of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notices issued under section 148 of the Income-tax Act, 1961, for the assessment years 1984-85 and 1985-86. These notices were issued beyond the period of four years from the end of the relevant assessment years. The primary contention was that the Income-tax Officer had no "reason to believe" that any income had escaped assessment. The court noted that the assessments were completed under section 143(1) or section 143(3) of the Act, and the notices for reopening were issued without specifying whether they were under section 147(a) or 147(b). The court presumed the notices were under section 147(a) since they were issued beyond four years.

2. Conditions Precedent for Assumption of Jurisdiction Under Section 147(a):
The petitioner argued that all relevant material facts were disclosed at the time of filing the returns, including the cost of construction of a house. The court examined the reasons recorded by the Income-tax Officer for reopening the assessment, which were based on a valuation report indicating a difference in the cost of construction. The court held that the valuation report was merely an opinion and did not constitute "reason to believe" that income had escaped assessment due to the assessee's failure to disclose material facts fully and truly. The court emphasized that an opinion of a third person cannot substitute the "reason to believe" of the Income-tax Officer.

3. Role and Admissibility of Valuation Report Under Section 55A:
The court analyzed the provisions of section 55A, which allows the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer for ascertaining its fair market value. The court held that such a reference is valid only when the assessment is still pending. Once the assessment is completed, the Income-tax Officer becomes functus officio, and any valuation report obtained thereafter cannot be used to reopen a completed assessment. The court cited multiple judgments to support this view, including decisions from the Rajasthan, Punjab, and Calcutta High Courts.

4. Compliance with Sections 147, 148, and 151 of the Income-tax Act, 1961:
The court examined whether the notices issued under section 148 complied with the provisions of sections 147 and 151. The court noted that the notices were issued after obtaining the necessary satisfaction from the Deputy Commissioner under section 151(2). However, the court held that the primary facts relating to the construction were fully and truly disclosed by the assessee, and there was no failure on the part of the assessee to disclose material facts. The court concluded that the notices issued under section 148 were without jurisdiction and not in compliance with the provisions of the Act.

Conclusion:
The court quashed and set aside the notices dated December 13, 1990, issued for the assessment years 1984-85 and 1985-86, holding them to be without jurisdiction and not in compliance with the provisions of sections 147 and 148 of the Income-tax Act, 1961. The petitions were allowed, and the rule issued in Civil Rule No. 356 of 1991 and Civil Rule No. 357 of 1991 was made absolute. There was no order as to costs.

← Previous Next →