1982 (9) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction of the Income Tax Officer (ITO) to reopen the assessment under Section 147(a) of the Act.
3. Whether the reassessment was initiated due to a mere change of opinion.
4. Allegations of non-disclosure of material facts by the petitioner.
5. The genuineness of the transactions and loans taken by the petitioner.
6. Whether the sanction accorded by the Central Board of Direct Taxes (CBDT) was mechanical.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 22nd February 1982, issued by the ITO under Section 148 of the Act, asserting that it was without jurisdiction and void. The notice directed the petitioner to submit a return for reassessment under Section 147(a), which the petitioner claimed was based on a mere change of opinion regarding the nature of losses (capital or revenue) and not due to any failure to disclose material facts.

2. Jurisdiction of the Income Tax Officer (ITO) to reopen the assessment under Section 147(a) of the Act:
The court emphasized that the existence of reasons to believe on the part of the ITO is a justiciable issue. It is for the court to be satisfied whether the ITO had reason to believe that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The court examined the original records and found that the reasons recorded by the ITO did not justify reopening the assessment under Section 147(a).

3. Whether the reassessment was initiated due to a mere change of opinion:
The court noted that the petitioner had disclosed all primary facts, including the profit and loss account, balance sheet, and interest account, during the original assessment. The ITO had accepted these transactions as part of the share-dealing business. The reassessment was sought on the grounds that the loss of Rs. 13,788 was a capital loss and not a revenue loss, and that the investment in B.I.C. shares was made by borrowing from bogus name-lenders. The court held that a mere change of opinion regarding the nature of losses could not justify reopening the assessment under Section 147(a).

4. Allegations of non-disclosure of material facts by the petitioner:
The court found no evidence that the petitioner had failed to disclose fully and truly all material facts necessary for assessment. The ITO's reasons for reopening the assessment did not indicate any failure on the part of the petitioner to disclose material facts. The court referred to several Supreme Court decisions, including Calcutta Discount Co. Ltd. v. ITO and CIT v. Bhanji Lavi, which established that the duty of the assessee is only to disclose primary facts, not to indicate the legal inference to be drawn from them.

5. The genuineness of the transactions and loans taken by the petitioner:
The ITO's reasons for reopening the assessment included doubts about the genuineness of loans taken from 13 alleged bogus name-lenders. The court found that the ITO's reasons were based on vague and indefinite information and did not provide a prima facie basis for believing that the transactions were not genuine. The court cited the Supreme Court decision in Chhugamal Rajpal v. S.P. Chaliha, which held that vague information about creditors being name-lenders was not sufficient to justify reopening an assessment.

6. Whether the sanction accorded by the Central Board of Direct Taxes (CBDT) was mechanical:
The petitioner argued that the CBDT's sanction for reopening the assessment was mechanical and without application of mind. The court, however, accepted the Department's contention that the stamped answer "Yes" to the question of whether the Board had accorded sanction was merely signed by the Deputy Secretary on behalf of the CBDT. The court did not find sufficient evidence to conclude that the sanction was mechanical.

Conclusion:
The court allowed the petition, quashed the impugned notice dated 22nd February 1982, and restrained the respondents from taking any action in pursuance thereof. The court found that the ITO had no reason to believe that any part of the petitioner's income had escaped assessment due to the petitioner's failure to disclose material facts. The reassessment was deemed to be based on a mere change of opinion, which was not legally justified.