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Issues:
Jurisdiction of the Income Tax Officer (ITO) to issue notices under section 148 of the Income Tax Act, 1961 based on the belief that income chargeable to tax had escaped assessment for certain years. Analysis: The petitioners, a partnership firm engaged in the business of manufacturing and selling khandsari sugar, filed petitions under Article 226 of the Constitution of India seeking to quash notices issued by the ITO under section 148 of the Income Tax Act. The dispute arose from the disallowance of interest paid by the firm to individual partners and Hindu Undivided Families (HUFs) during the assessment years 1976-77 and 1977-78. The petitioners argued that they had disclosed all material facts during assessment, while the respondent contended that the interest paid to the HUFs was not fully disclosed. The respondent issued notices under section 148, claiming income had escaped assessment due to the undisclosed interest payments. The petitioners challenged the jurisdiction of the ITO to issue these notices. The court referred to the Supreme Court's decision in Kantamani Venkata Narayana and Sons v. First Addl. ITO, emphasizing that the High Court's role is to determine if the conditions for reopening assessment existed. It was noted that the sufficiency of grounds for the ITO's belief is not justiciable, but the court can assess if the reasons for the belief are rational and relevant. The conflicting versions regarding the disclosure of interest payments to the HUFs were considered. The court concluded that even if section 147(a) was not applicable, the ITO had jurisdiction under section 147(b) to reopen the assessment based on new information received. Citing the case of CIT v. Anand Transport Co. P. Ltd., the court highlighted that section 147(b) allows reassessment based on information in the possession of the ITO. The court agreed with the interpretation that information includes knowledge of relevant judicial decisions. In this case, the ITO's belief that income had escaped assessment was deemed valid, and the jurisdiction to issue notices under section 148 was upheld. Ultimately, the court dismissed the petitions, stating that the ITO had the authority to issue notices for reassessment under section 147(b) based on new information. The parties were directed to bear their own costs, and any security deposit was to be refunded to the petitioners.
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