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Issues involved: Assessment under section 143(3) and reopening under section 147(b) of the Income-tax Act, 1961 based on non-genuine parties and bogus transactions.
Assessment under section 143(3): The company's assessment for the year 1980-81 was completed under section 143(3) of the Income-tax Act, 1961, on a total income of Rs. 5,286. An income-tax raid in the premises led to the completion of the assessment about one and a half years later. Reopening under section 147(b): A notice was issued under section 148 requiring the assessee to file a return, stating that the assessment was being reopened under section 147(b) due to non-genuine parties involved in purchases and sales. The assessee challenged the notice as being issued by a successor-in-office and lacking a direct nexus with the belief of income escaping assessment. Legal Arguments: The assessee contended that the notice under section 147(b) was illegal as it lacked a direct nexus with the belief of income escaping assessment. The Income-tax Department argued that subsequent information revealed the involvement of non-genuine parties in transactions post-assessment. Court's Analysis: The court examined the provisions of section 147 and noted that the expression "reason to believe that income has escaped assessment" is common to both clauses (a) and (b) of section 147. Referring to relevant Supreme Court decisions, the court held that the information must have a direct nexus with the belief of income escaping assessment. Decision: The court found that the information provided in the notice lacked a sound basis for the belief that income had escaped assessment. As a result, the notice issued under section 147(b) was quashed, ruling in favor of the assessee. The rule was made absolute in terms of prayer clause (a) with no order as to costs.
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