1991 (5) TMI 17 - HC - Income Tax

Summary

Issues:
- Challenge against notice issued under section 148 of the Income-tax Act, 1961 for the assessment year 1974-75.
- Reopening of assessment under section 147(b) and subsequent issuance of notice under clause (a) of section 147.
- Inclusion of interest earned on security deposits with the Telephone Department and U. P. Electric Supply Company in the assessee's income.
- Adequacy of reasons recorded by the Income-tax Officer for reopening the assessment.
- Allegation of mechanical issuance of the show cause notice without proper application of mind.

Analysis:
The judgment pertains to a writ petition challenging a notice issued under section 148 of the Income-tax Act, 1961 for the assessment year 1974-75. The petitioner contended that a similar notice was previously issued under section 147(b) but was dropped after a representation to the Inspecting Assistant Commissioner. The current notice under clause (a) of section 147 sought to include interest earned on security deposits with the Telephone Department and U. P. Electric Supply Company in the assessee's income. The reasons recorded by the Income-tax Officer indicated that the interest on these deposits had not been disclosed by the assessee during the assessment proceedings, leading to an alleged escapement of income chargeable to tax amounting to Rs. 250.

The court scrutinized the reasons recorded for reopening the assessment and found them to be inadequate. It noted that the interest was payable on the security deposit made for obtaining a telephone connection under a specific scheme but did not establish the same for the deposit with the U. P. Electric Supply Company. The court also highlighted the trivial amount of Rs. 250 being sought to be included in the assessment, questioning the necessity for issuing notices under section 148 twice. The petitioner, in their rejoinder affidavit, clarified that no interest was payable on the deposits as claimed by the Income-tax Officer.

Consequently, the court held that the show cause notice was issued mechanically without due consideration of the facts and circumstances. It deemed the notice to be flawed and quashed it accordingly. The writ petition was allowed, and no costs were awarded in the matter.