1991 (8) TMI 10 - HC - Income Tax

Summary

Issues involved: (1) Jurisdiction of the Income-tax Officer to issue notices u/s 148 read with section 147(a), (2) Validity of sanction under section 151, (3) Relevance and sufficiency of reasons recorded for issuing notices, (4) Challenge to the circular dated March 24, 1981.

The petitioner-company challenged notices issued u/s 148 of the Income-tax Act, 1961, for six assessment years alleging income escaped assessment. The petitioner contended there was no omission or failure to disclose material facts and that the method of stock valuation was consistently adopted. The Revenue argued the method was improper, leading to undervaluation of inventories and understatement of profits.

Issue 1: Jurisdiction of the Income-tax Officer

The petitioner argued there was no omission or failure to disclose material facts necessary for assessment. The Revenue contended the petitioner did not include fiscal duties and manufacturing costs in the closing stock valuation, resulting in income escaping assessment. The court held that there was omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment, thereby justifying the issuance of notices u/s 148 read with section 147(a).

Issue 2: Validity of sanction under section 151

The petitioner contended the sanction by the Central Board of Direct Taxes was mechanical and lacked application of mind. The court found that the reasons recorded for issuing the notices were good and valid, and the authority had applied its mind before according sanction. Thus, the sanction under section 151 was held valid.

Issue 3: Relevance and sufficiency of reasons recorded

The petitioner argued that the reasons were not relevant or germane to the exercise of power under sections 147(a) and 148. The court held that the reasons recorded were relevant and germane, and there were reasonable grounds for the Income-tax Officer to believe that income had escaped assessment due to the petitioner's failure to disclose material facts. The sufficiency of the reasons was not justiciable.

Issue 4: Challenge to the circular dated March 24, 1981

The petitioner challenged the circular issued by the Under Secretary, Central Board of Direct Taxes. The court noted that the impugned notices were not based on the circular but were issued under section 148 read with section 147(a). Therefore, it was unnecessary to consider the validity of the circular.

Conclusion

The court rejected all contentions raised by the petitioner, upheld the jurisdiction of the Income-tax Officer to issue the notices, validated the sanction under section 151, and confirmed the relevance and sufficiency of the reasons recorded for issuing the notices. The writ petition was dismissed with costs.