1980 (7) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued u/s 148 of the I.T. Act, 1961.
2. Jurisdiction of the ITO to issue the notice.
3. Justification of the Commissioner's sanction for the notice.
4. Relevance of the confessional statement as material for reopening the assessment.

Summary:

1. Validity of the notice issued u/s 148 of the I.T. Act, 1961:
The appellant challenged the notice dated September 26, 1969, issued by the ITO u/s 148 of the I.T. Act, 1961, claiming that the income for the assessment year 1962-63 had escaped assessment. The appellant argued that he had fully disclosed all material facts in his original return and that the notice was illegal, inoperative, and void.

2. Jurisdiction of the ITO to issue the notice:
The appellant contended that there was no material before the ITO to form a reasonable belief that the income had escaped assessment due to the appellant's failure to disclose all material facts. The ITO, in his affidavit-in-opposition, stated that the reopening was based on a confession by Prahlad Roy Almal, who admitted to being a name-lender and that the loan transactions were bogus.

3. Justification of the Commissioner's sanction for the notice:
The court examined whether the Commissioner was justified in granting sanction for the notice. It was noted that the Commissioner must apply his mind to the material relied on by the ITO. The ITO had sent a forwarding letter along with the recorded reasons, which included the confessional statement of Prahlad Roy Almal. The court presumed that the Commissioner was aware of the confessional statement and thus, the sanction was not granted without jurisdiction.

4. Relevance of the confessional statement as material for reopening the assessment:
The court considered whether the confessional statement of Prahlad Roy Almal constituted relevant material for the ITO to form a reasonable belief. The Supreme Court's principle in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 was cited, emphasizing that there must be a direct nexus or live link between the material and the formation of the belief. The court found that the confessional statement did not mention the appellant and lacked a direct nexus to the alleged escaped income. Thus, it was not sufficient material to justify reopening the assessment.

Conclusion:
The court set aside the judgment of the learned judge, made the rule nisi absolute, and issued a writ of certiorari quashing the impugned notice u/s 148 of the I.T. Act, 1961. A writ of mandamus was also issued, commanding the respondents not to proceed with the reopened assessment proceedings based on the impugned notice. The appeal was allowed without any order for costs.