1995 (1) TMI 35 - HC - Income Tax

Assessment Proceedings, Failure To Disclose Material Facts, Original Assessment, Purchase And Sale, Reassessment Proceedings

Summary

Issues Involved:
1. Validity of the notice issued under section 147 of the Income-tax Act, 1961.
2. Alleged escapement of income from assessment.
3. Change of opinion as a ground for reopening assessment.
4. Jurisdiction of the High Court under Article 226 of the Constitution.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 147 of the Income-tax Act, 1961:
The petitioner-company challenged the notice dated March 29, 1988, issued under section 147 of the Income-tax Act, 1961, for the assessment year 1984-85. The notice alleged that the petitioner had escaped assessment within the meaning of section 147 of the Act. The petitioner argued that the notice was invalid as it was based on a mere change of opinion, which is not a valid ground for reopening an assessment.

2. Alleged Escapement of Income from Assessment:
The petitioner, a partnership firm dealing in cloth, had filed a return showing a loss of Rs. 7,777 for the assessment year 1984-85. The petitioner claimed that a syndicate of five dealers, including itself, had purchased and sold cloth from Marsdan Monogram Mills, with the profit shared equally among them. The Income-tax Officer, however, added the entire profit to the petitioner's income, rejecting the syndicate's existence due to the lack of a written agreement and separate accounts. The Deputy Commissioner of Income-tax (Appeals) later accepted the syndicate's existence and directed that only one-fifth of the profits be taxed in the petitioner's hands.

3. Change of Opinion as a Ground for Reopening Assessment:
The petitioner contended that the impugned notice was issued merely due to a change of opinion by the succeeding Income-tax Officer, which is not a valid ground for reopening an assessment. The original assessment had been thoroughly examined, and the Deputy Commissioner (Appeals) had concluded that the syndicate existed, with the profit shared among its members. The Income-tax Appellate Tribunal also upheld this view. The reopening of the assessment was based on the same facts and evidence already considered, indicating it was a mere change of opinion.

4. Jurisdiction of the High Court Under Article 226 of the Constitution:
The respondent argued that the writ petition was premature and that the petitioner should have raised objections in reply to the notice. However, the court noted that the petitioner had already provided detailed explanations during the original assessment proceedings, which were accepted by the appellate authorities. The court emphasized that reopening an assessment based on a change of opinion is not permissible under section 147 of the Act. The High Court has jurisdiction under Article 226 to interfere with such notices when they are issued without jurisdiction.

Conclusion:
The court concluded that the reopening of the assessment was based on a mere change of opinion. The reasons provided in the memo dated March 18, 1988, were already considered during the original assessment proceedings. The Deputy Commissioner (Appeals) and the Income-tax Appellate Tribunal had both upheld the petitioner's position regarding the syndicate. Therefore, the impugned notice was deemed without jurisdiction and was quashed. The writ petition succeeded, and the rule was made absolute accordingly.