1990 (3) TMI 32 - HC - Income Tax

Summary

Issues: Validity of notice under section 148 for reopening assessment beyond four years

Analysis:
The petitioner, a partnership firm engaged in supplying laborers abroad, challenged a notice issued under section 148 of the Income-tax Act, 1961, for the assessment year 1978-79. The assessment was originally completed under section 144, reopened under section 146, and fresh assessment made under section 143(3) read with section 144B. The notice was issued beyond four years after the assessment year, necessitating it to be valid under section 148 read with section 147(a).

The Income-tax Officer sought rectification under section 154/155 based on internal audit objections and general observations post-assessment. The petitioner contended that the audit objections were unfounded and constituted a change of opinion on mixed questions of fact and law. Citing the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, the petitioner argued that audit objections were an invalid basis for reopening the assessment.

Conversely, the Department argued that the audit objections pertained to facts, not law. They contended that the petitioner's failure to deduct tax from salaries paid to laborers constituted valid grounds for reopening the assessment. The Department suggested that the petitioner could provide an explanation to potentially avoid adverse consequences.

The court held that the notice under section 148 was to be quashed. It noted that the internal audit's opinions on the assessment were incorrect, and the objections raised were not valid grounds for reopening the assessment. The court emphasized that the audit objections involved questions where law needed to be applied to facts, falling within the scope of the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. Consequently, the notice issued under section 148 was deemed without jurisdiction and quashed.

In conclusion, the court ruled in favor of the petitioner, quashing the notice under section 148 for reopening the assessment beyond four years, citing the improper basis of internal audit objections and the application of law to factual questions.