1990 (7) TMI 84 - HC - Income Tax

Issues Involved:
1. Extent of jurisdiction of courts under Article 226 of the Constitution of India to review the action of the Income Tax Officer proposing assessment of escaped income under Sections 147 and 148 of the Income-tax Act.
2. Whether the preconditions necessary for action under Sections 147 and 148 existed.
3. Whether the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment.
4. Whether there was failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
5. Whether the judicial review of reassessment proceedings is limited.
6. Whether the non-disclosure of stock statements to the bank constituted failure to disclose material facts.
7. Whether the court should exercise its extraordinary and discretionary jurisdiction under Article 226.

Detailed Analysis:

1. Extent of Jurisdiction under Article 226:
The court examined the extent of its jurisdiction under Article 226 to review the action of the Income-tax Officer in proposing the assessment of escaped income under Sections 147 and 148. The court noted that judicial review is limited to ascertaining whether the Income-tax Officer had reason to believe that reopening of assessment was necessary and whether it was due to the failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

2. Preconditions for Action under Sections 147 and 148:
The petitioner argued that the preconditions for action under Sections 147 and 148 did not exist. The court observed that the Income-tax Officer must have reason to believe that income chargeable to tax had escaped assessment due to the assessee's omission or failure to disclose all material facts necessary for the assessment. The court found that the Income-tax Officer had complied with these preconditions.

3. Reason to Believe Income Escaped Assessment:
The court scrutinized whether the Income-tax Officer had reason to believe that income had escaped assessment. The Income-tax Officer found discrepancies between the stock disclosed to the bank and the stock accounts produced for assessment, leading to the belief that income had escaped assessment. The court held that the Income-tax Officer had a bona fide belief based on relevant material, justifying the reopening of the assessment.

4. Failure or Omission to Disclose Material Facts:
The petitioner contended that there was no failure or omission to disclose material facts. The court noted that the stock-in-trade of a trading concern is material for assessment, and the petitioner had failed to disclose the actual stock held. The court concluded that the petitioner had not disclosed fully and truly all material facts necessary for assessment.

5. Limited Judicial Review of Reassessment Proceedings:
The court emphasized that judicial review of reassessment proceedings is limited to verifying whether the Income-tax Officer had reason to believe that income had escaped assessment due to the assessee's failure to disclose material facts. The court found that the Income-tax Officer's belief was based on relevant and cogent material.

6. Non-disclosure of Stock Statements:
The petitioner argued that non-disclosure of stock statements to the bank did not constitute failure to disclose material facts. The court held that the stock-in-trade is material for assessment, and the petitioner had a duty to disclose it. The court found that the petitioner had disclosed only part of the stock, leading to the belief that income had escaped assessment.

7. Exercise of Extraordinary Jurisdiction under Article 226:
The court considered whether to exercise its extraordinary and discretionary jurisdiction under Article 226 to interfere with the reassessment proceedings. The court noted that all defences are open to the assessee in the reassessment proceedings and that there is no need for interference at this stage. The court dismissed the writ petitions, stating that there was no justification for interference.

Conclusion:
The court dismissed the writ petitions, holding that the Income-tax Officer had reason to believe that income had escaped assessment due to the petitioner's failure to disclose fully and truly all material facts necessary for assessment. The court emphasized the limited scope of judicial review in reassessment proceedings and declined to exercise its extraordinary jurisdiction under Article 226.

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