1996 (9) TMI 620 - HC - Income Tax

Summary

Issues:
1. Challenge to reference made by income-tax authorities to determine the cost of construction.
2. Validity of orders directing reassessment without giving a show-cause notice.

Analysis:

Issue 1: Challenge to Reference Made by Income-tax Authorities
The judgment addresses three writ petitions raising a common question regarding references made by income-tax authorities to determine the cost of construction. In the first case, the petitioner-firm constructed a building and club, maintaining accounts audited by a Chartered Accountant. The Income-tax Officer (ITO) sent a notice requesting a balance sheet, leading to a reference to another authority. The second case involved a Roller Flour Mill where a similar reference was made by the ITO. The third case pertained to the construction of a hotel building, with a reference made by the ITO to determine the cost of construction and machinery. The petitioners challenged these references, arguing against the authority's actions.

Issue 2: Validity of Orders Directing Reassessment
The judgment highlights concerns regarding the validity of orders directing reassessment without providing a show-cause notice to the petitioners. The Income-tax Officer expressed doubts about the construction costs, leading to a reference to the Evaluation Officers. However, the judgment emphasizes that the absence of reasons for deeming the costs exorbitant and the failure to provide a show-cause notice are violations of legal principles. It is noted that the Income-tax Department had previously accepted the petitioners' accounts during assessment proceedings. The judgment concludes by quashing the impugned orders directing reassessment and emphasizes the necessity of giving a show-cause notice to the petitioners before any reassessment. The respondents are directed to consider the final assessment orders and provide reasons for rejecting the petitioners' valuation before passing any further orders.

In conclusion, the judgment quashes the impugned orders and allows the writ petitions, emphasizing the importance of procedural fairness and the obligation to provide reasons and a show-cause notice before directing reassessment. The respondents are instructed to follow due process and consider the petitioners' objections before making any decisions regarding the valuation of the properties in question.