1991 (1) TMI 130 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued u/s 142(1) and 143(2) of the Income-tax Act.
2. Requirement of proper and valid reopening of assessment.
3. Comparison of Section 143(2)(b) with Section 147 of the Income-tax Act.
4. Exercise of power under Section 143(2)(b) and its implications.

Summary:

1. Validity of Notices Issued u/s 142(1) and 143(2):
The petitioners, registered firms, challenged the notices dated December 21, 1987, issued u/s 142(1) and 143(2) of the Income-tax Act for the assessment year 1986-87. The petitioners argued that the notices were issued without proper and valid reopening of the assessment and without forming an opinion that the returns filed were incorrect or incomplete. The court noted that the notices were issued as part of the "selective scrutiny cases" scheme.

2. Requirement of Proper and Valid Reopening of Assessment:
The petitioners contended that no fresh proceedings could be commenced without proper reopening of the completed assessments. They argued that the notice u/s 143(2)(b) should be preceded by the Income-tax Officer forming an opinion that the return was incorrect and incomplete. The court referred to Section 143(2) and the proviso requiring the previous approval of the Inspecting Assistant Commissioner before issuing such notices.

3. Comparison of Section 143(2)(b) with Section 147:
The petitioners compared Section 143(2)(b) with Section 147, which allows reopening of a completed assessment if the Income-tax Officer forms a reasonable belief about the escapement of income. They argued that Section 143(2)(b) should not vest unbridled discretion in the Income-tax Officer. The court distinguished the two sections, noting that Section 143(2)(b) contemplates "fresh assessment" as part of the initial assessment power, whereas Section 147 deals with reopening based on a reasonable belief of income escapement.

4. Exercise of Power under Section 143(2)(b) and Its Implications:
The court discussed the new scheme for summary assessments, which aims to reduce the volume of the department's work and save assessees from the trouble of attending scrutiny. The scheme relies on the honesty of assessees and includes the possibility of scrutiny u/s 143(2) as a deterrent against filing incorrect returns. The court emphasized that the power u/s 143(2)(b) should be exercised with prior approval of the Inspecting Assistant Commissioner and is not comparable to the assessments under Section 147. The court concluded that the notices issued were part of the summary assessment scheme and dismissed the writ petitions, stating that the assessees cannot demand to be treated as exceptional cases unless patent arbitrariness or mala fides are established.

Conclusion:
The writ petitions were dismissed, and the court upheld the validity of the notices issued u/s 142(1) and 143(2) as part of the summary assessment scheme, emphasizing the need for assessees to reciprocate the faith reposed in them by the scheme.