1988 (2) TMI 25 - HC - Income Tax

Summary

Issues Involved:

1. Validity of the notice issued u/s 148 of the Income-tax Act, 1961.
2. Compliance with the conditions precedent for the exercise of power u/s 148.
3. Adequacy of the reasons recorded for reopening the assessment.
4. Limitation period for issuing the notice.

Summary:

1. Validity of the notice issued u/s 148 of the Income-tax Act, 1961:
The appeal was directed against a judgment dismissing a writ petition that challenged a notice issued u/s 148 of the Income-tax Act, 1961. The petitioner contended that the notice was invalid as the condition precedent for the exercise of power u/s 148 was non-existent.

2. Compliance with the conditions precedent for the exercise of power u/s 148:
The petitioner argued that there was no material basis for the Income-tax Officer (ITO) to form a "reason to believe" that income had escaped assessment. The court examined sections 147 and 148, emphasizing that the ITO must record reasons for reopening an assessment and obtain the necessary satisfaction of the Commissioner.

3. Adequacy of the reasons recorded for reopening the assessment:
The recorded reasons by the ITO stated, "I have reason to believe that the assessee, at the time of the original assessment, did not disclose fully and truly all material facts necessary for the assessment in respect of the sources of loans alleged to have been taken from hundi bankers." The court found that the reasons recorded were vague and not sufficient to justify reopening the assessment. The court relied on the precedent set by the Supreme Court in ITO v. Lakhmani Mewal Das, which requires a direct nexus between the material and the belief of income escapement.

4. Limitation period for issuing the notice:
The court noted that even if the reopening could be justified under section 147(b), the notice was time-barred due to the period of limitation. The court held that the reopening of the assessment was not justified and the notice issued u/s 148 was invalid.

Conclusion:
The appeal was allowed, and the writ petition was granted. The rule was made absolute, and an order of mandamus was issued restraining the respondents from giving effect to the impugned notice u/s 148. The court also noted that any assessment completed based on the impugned notice should not be given effect to. There was no order as to costs.