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Issues: Challenge to the legality and jurisdiction of the Income Tax Officer (ITO) to issue notice under section 148 of the Income Tax Act, 1961.
Analysis: The petitioners, in this case, challenged the legality and jurisdiction of the ITO to issue a notice under section 148 of the Income Tax Act, 1961. The petitioners had purchased a plot with buildings in 1953 and made alterations to use it for a factory producing pharmaceutical products. They let out a portion of the land to a company and were assessed for the first time in the assessment year 1954-55. The ITO treated the rent received as income from "Other sources" under section 56 of the Act. Over the years, the petitioners made further constructions and entered into various agreements with the lessee company. The ITO completed assessments for the years 1973-74 to 1976-77 treating the income as "Other sources." Subsequently, the ITO issued a notice under section 148 proposing to reopen the assessment for those years, alleging that income had escaped assessment. The petitioners contended that the ITO's action was based on a mere change of opinion and not valid grounds for reopening the assessment. The court considered the submissions made by the petitioners' counsel, emphasizing that a mere change of opinion was not sufficient to warrant the exercise of jurisdiction under section 148 of the Income Tax Act. It was noted that the petitioners had disclosed all relevant material regarding the rent and compensation received. The ITO's impression that the assessment was incorrect due to the nature of the let-out property was deemed a change of opinion, which did not justify reopening the assessment. Referring to relevant case law, including the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT, the court held that exercising jurisdiction under section 148 based on an audit objection was impermissible. The court cited the decision in CIT v. Killick Industries Ltd., where it was established that a claim of incorrect assessment heading was a mere change of opinion, not a valid reason for reopening the assessment. Consequently, the court found the ITO's exercise of jurisdiction irregular and struck down the notice issued under section 148. In conclusion, the petition was successful, and the court made the rule absolute in favor of the petitioners. No costs were awarded in this case.
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