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Issues involved: Challenge to notice u/s 148 of Income-tax Act for reassessment of income for assessment year 1988-89.
Details of the judgment: Issue 1: Validity of notice u/s 148 The petitioners, a company, challenged a notice issued u/s 148 of the Income-tax Act for reassessment of income for the assessment year 1988-89. The Assessing Officer proposed reassessment based on transactions related to a property, including a lease agreement and sale of reversionary rights. The court noted that the transactions occurred prior to the relevant assessment year, and there was no material for the Assessing Officer to believe that income had escaped assessment for that year. Referring to the case of Sheo Nath Singh v. AAC, the court emphasized that the belief for reassessment must be based on reasonable grounds, not mere suspicion. As there was no material to support income escaping assessment for the relevant year, the court held the notice u/s 148 to be without jurisdiction and set it aside. Issue 2: Alleged interest income on advance Another transaction under scrutiny was an advance given by the assessee-company to another entity for construction of a hotel, where no interest was charged. The Assessing Officer contended that interest income of approximately Rs. 3 lakhs had escaped assessment. However, the court observed that since no interest income was actually received by the assessee-company in the assessment year 1988-89, there was no basis for charging tax on income that was not earned. Citing the case of CIT v. A. Raman and Co., the court reiterated that income which could have been earned but was not received is not taxable. Therefore, the court found that the reasons for reassessment in this regard were also beyond the scope of section 147, and the notice u/s 148 was set aside. Conclusion: The High Court held that the notice issued u/s 148 of the Income-tax Act was without jurisdiction in both transactions and consequently set it aside. The rule was made absolute with no order as to costs.
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