1983 (12) TMI 34 - HC - Income Tax

Summary

Issues:
1. Jurisdictional validity of proceedings initiated under section 148 of the Income Tax Act.
2. Application of section 10(6)(vii) of the Income Tax Act to the case.
3. Impact of circular dated May 8, 1977, issued by the CBDT on assessments.
4. Reopening of assessment based on information from the audit department.

Analysis:

The judgment delivered by Justice Pendse of the Bombay High Court pertains to a case involving the jurisdictional validity of proceedings initiated under section 148 of the Income Tax Act. The petitioners, a German national and a company incorporated under the Companies Act, challenged the legality of the action taken by the Income Tax Officer (ITO) in reassessing the income for the assessment years 1975-76 and 1976-77. The petitioners contended that the initiation of proceedings under section 148 was without jurisdiction as the conditions precedent for exercising such jurisdiction did not exist. The notice under section 148 did not provide any grounds or reasons for the reassessment, which was deemed erroneous by the petitioners' counsel.

The respondents, represented by the First Income-tax Officer, argued that the provisions of section 10(6)(vii) of the Income Tax Act were wrongly applied to the case of the petitioner. They claimed that approval from the Government of India should have been obtained before the first day of October of the relevant assessment year for the provisions to be applicable. Additionally, it was contended that the ITO who conducted the assessments was unaware of a circular dated May 8, 1977, issued by the CBDT, which impacted the validity of the assessments.

The court considered the submissions of both parties and referred to the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. The Supreme Court's ruling emphasized that the opinion of an internal audit party of the Income-tax Department on a point of law does not constitute "information" for the purpose of reopening assessments under section 147(b) of the Income Tax Act. Based on this precedent, the court concluded that the ITO was in error in initiating proceedings for reassessment based on information from the audit department and the lack of awareness of the circular issued by the CBDT.

In light of the above analysis, Justice Pendse held that the initiation of proceedings by the respondent ITO under section 148 was entirely without jurisdiction. Consequently, the court ruled in favor of the petitioners, quashing the action of the ITO and making the rule absolute. No costs were awarded in the matter.