1991 (9) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under section 147(1)(a) of the Income-tax Act, 1961.
2. Requirement of evidence for sales tax liabilities under section 43B.
3. Clubbing of minor's income with the assessee's income.
4. Adequacy and sufficiency of reasons for reopening the assessment.
5. Use of information from protective assessment for reopening substantive assessment.

Issue-wise Detailed Analysis:

1. Validity of the notice under section 147(1)(a) of the Income-tax Act, 1961:
The petitioner challenged the notice dated January 15, 1991, issued by the Income-tax Officer (ITO) to reopen the assessment for the year 1989-90 under section 147(1)(a) of the Income-tax Act, 1961. The petitioner argued that the reasons for reopening were not provided until the return was filed. The court noted that the petitioner had submitted his return in response to the notice and directed the ITO to confront the petitioner with the reasons recorded and supply a copy thereof before proceeding further. The court found that the ITO had valid reasons to believe that income had escaped assessment due to non-disclosure of material facts.

2. Requirement of evidence for sales tax liabilities under section 43B:
The ITO sought to reopen the assessment because the petitioner had not provided evidence that sales tax liabilities were paid before filing the return, as required by the first proviso to section 43B. The petitioner relied on the statutory audit statement and report in Forms 3CB and 3CD, which stated "Nil" against unpaid taxes. However, the court found that these forms related to a registered firm, Messrs. Continental Chemical Co., and not to the petitioner as an individual. The court held that the ITO was justified in reopening the assessment because the petitioner failed to provide evidence of actual payment of sales tax liabilities before filing the return.

3. Clubbing of minor's income with the assessee's income:
The ITO received information that the income of Rs. 22,000 declared by the petitioner's minor daughter, Miss. Mayura Gupta, should be clubbed with the petitioner's income. The court referred to the assessment order of Kumari Mayura Gupta, which concluded that the income was not a gift but a casual receipt used for business purposes, and thus should be clubbed with the guardian's income. The court noted that the petitioner did not disclose this income in his return, which justified the reopening of the assessment under section 147(a).

4. Adequacy and sufficiency of reasons for reopening the assessment:
The court agreed with the petitioner's counsel that the adequacy and sufficiency of the reasons for reopening the assessment could not be challenged. The court found that the ITO had relevant and material reasons to believe that income had escaped assessment due to non-disclosure of material facts. The court referred to the Supreme Court's decision in the case of Ganga Saran and Sons P. Ltd. v. ITO, which held that the belief of the ITO must be reasonable and based on relevant and material reasons.

5. Use of information from protective assessment for reopening substantive assessment:
The court addressed the petitioner's argument that the information recorded by the ITO in the assessment order of Kumari Mayura Gupta could not be used to reopen the petitioner's assessment. The court referred to the Delhi High Court's decision in the case of Sohan Singh v. CIT, which upheld the reopening of assessments based on protective assessments. The court concluded that the ITO was justified in using the information from the protective assessment of Kumari Mayura Gupta to reopen the substantive assessment of the petitioner.

Conclusion:
The court dismissed the writ petition, holding that the ITO was justified in reopening the assessment proceedings under section 147 of the Income-tax Act for both reasons provided. The petitioner failed to disclose material facts necessary for the assessment, and the ITO had valid reasons to believe that income had escaped assessment. The court emphasized that these observations were made at the stage of "reason to believe" and were not final conclusions regarding the completion of the assessment orders under section 147.