1988 (8) TMI 16 - HC - Income Tax

Summary

Issues:
- Whether the notices issued by the Income-tax Officer to reopen the assessment order of a dissolved firm and its partners are valid.
- Whether the difference in the closing stock and figures in the accounts was previously investigated by the Income-tax Officer before the assessment order was passed.

Analysis:
The petition was filed by a dissolved firm and its partners seeking to quash the notices issued by the Income-tax Officer to reopen the assessment order of the firm. The firm's return for the assessment year 1972-73 had an income determined at Rs. 1,19,980. The notices were issued based on discrepancies in the closing stock and figures in the accounts. The firm argued that the investigation into this matter had already been conducted before the assessment order was passed on November 29, 1972, and thus, the notices were illegal and should be quashed.

The main issue revolved around whether the investigation into the closing stock and account figures had already been conducted by the Income-tax Officer before the assessment order was passed. The firm's partner provided an affidavit stating that the matter was inquired into during the initial assessment. However, the Income-tax Officer and another officer denied the existence of any such inquiry. The Revenue was given multiple opportunities to explain the situation, but failed to do so satisfactorily.

The court examined a letter dated November 28, 1972, from the firm to the Income-tax Officer, which detailed the discrepancy in stock valuation and explained the reasons for the difference in figures. Additionally, another letter from a subsequent assessment year further supported the firm's claim that the matter had been previously investigated. The assessment order itself contained references to the inquiry conducted into the stock valuation. Based on these pieces of evidence, the court concluded that the investigation had indeed taken place before the assessment order was passed. Therefore, the court quashed the impugned notices and allowed the writ petition with costs quantified at Rs. 250.