1990 (3) TMI 27 - HC - Income Tax

Summary

Issues:
Challenge to notices issued under section 148 read with section 147(a) of the Income-tax Act, 1961 for assessment years 1978-79 and 1979-80.

Analysis:
The petitioner, a registered partnership firm engaged in money-lending business, contested two notices issued by the Income-tax Officer under section 148 read with section 147(a) of the Income-tax Act, 1961, for the assessment years 1978-79 and 1979-80. The assessments were initially completed ex parte under section 144 in 1981, following a raid on the petitioner's premises where books of account were seized. Subsequently, fresh assessments were made under section 143(3) in 1982. The Income-tax Officer reopened the assessments upon discovering dubious cash credits in the petitioner's books, suspecting income escapement due to non-disclosure of full particulars of income. The notices lacked disclosure of reasons and jurisdiction, prompting the petitioner to challenge them. The petitioner contended that the notices were issued without jurisdiction and should be quashed.

The petitioner relied on the Supreme Court decisions in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1. It was argued that the material forming the basis for reopening assessments must establish a direct nexus between the material and the belief of income escapement. The petitioner asserted that it had disclosed primary facts during the original assessment, fulfilling its obligation, and was not required to point out inferences to the Income-tax Officer. The petitioner maintained that the notices lacked valid grounds and should be invalidated.

The Department's counsel argued that the Income-tax Officer had provided broad grounds for reopening assessments and would furnish detailed reasons subsequently. It was emphasized that assessing officers generally rely on accepted evidence during assessments, and reassessment occurs when such evidence is found to be dubious or false. The Department contended that the petitioner's duty was to make true and full disclosure during the original assessment, and any subsequent discovery of falsified evidence warranted reassessment.

The High Court, following the Supreme Court precedent in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, concluded that the material presented by the Income-tax Officer lacked a direct link to the belief of income escapement. Additionally, it was determined that the petitioner had provided necessary details during the original assessments, fulfilling its obligation of disclosure. Therefore, the High Court quashed the notices issued under section 147(a) and ruled in favor of the petitioner.