1988 (4) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the notice issued under section 148 of the Income-tax Act.
2. Justification for the reassessment proceedings under section 147(a) of the Income-tax Act.
3. Requirement for the Income-tax Officer to record reasons for initiating proceedings under section 147(a).
4. Examination of disputed facts in writ jurisdiction under Articles 226 and 227 of the Constitution of India.

Detailed Analysis:

1. Legality of the notice issued under section 148 of the Income-tax Act:
The petitioner-firm challenged the notice issued by the Income-tax Officer under section 148, arguing it was issued without justification and jurisdiction. The notice stated that during the assessment year 1974-75, the books of account for the earlier years (1972-73 and 1973-74) were examined, revealing sums debited as fictitious commission payments. The petitioner contended that no such books were called for under section 142(1) and that the Income-tax Officer had previously assessed these amounts as genuine. The court found that the notice did not disclose any new material apart from the books of account already examined, indicating a mere change of opinion by the Income-tax Officer.

2. Justification for the reassessment proceedings under section 147(a) of the Income-tax Act:
The petitioner argued that the reassessment proceedings were unjustified as they were based on the same materials previously assessed. The court cited precedents, including CIT v. Dinesh Chandra H. Shah and ITO v. Lakhmani Mewal Das, emphasizing that a mere change of opinion does not justify reassessment. The court held that the notice did not show any omission or failure by the petitioner to disclose material facts, a necessary condition for invoking section 147(a).

3. Requirement for the Income-tax Officer to record reasons for initiating proceedings under section 147(a):
The court reiterated the legal requirement for the Income-tax Officer to record reasons before initiating proceedings under section 147(a). The reasons must have a material bearing on the question of escapement of income. The court found that the notice and counter-affidavit did not disclose any such reasons, only stating the belief without justifiable grounds. The court referenced ITO v. Madnani Engineering Works Ltd. and Ganga Saran and Sons (Pvt.) Ltd. v. ITO, which established that the reasons must be relevant and material to the escapement of income.

4. Examination of disputed facts in writ jurisdiction under Articles 226 and 227 of the Constitution of India:
The court noted that it would not investigate disputed questions of fact in writ jurisdiction. It proceeded on the basis of admitted facts, concluding that the petitioner had produced books of account during the original assessment. The court emphasized that the grounds or reasons for the Income-tax Officer's belief must be disclosed and justiciable, allowing the court to examine their relevance and materiality. The court found that the notice lacked such grounds, rendering the reassessment proceedings unjustified.

Conclusion:
The court quashed the notice issued under section 148 and all subsequent proceedings, holding that the Income-tax Officer did not have jurisdiction to issue the notice based on a mere change of opinion without new material evidence. The court emphasized the necessity for the Income-tax Officer to record and disclose reasons for reassessment, which were absent in this case.