1982 (3) TMI 54 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under Section 269D(1) of the Income Tax Act, 1961.
2. Jurisdiction and authority of the Commissioner of Income Tax to direct the competent authority.
3. Whether the competent authority had fresh material to initiate proceedings after initially deciding to drop them.
4. Whether the proceedings under Section 269C of the Income Tax Act are administrative or quasi-judicial in nature.

Detailed Analysis:

1. Validity of the Notice Issued under Section 269D(1) of the Income Tax Act, 1961:
The petitioner challenged the notice dated July 26, 1979, issued under Section 269D(1) of the Income Tax Act, 1961, on the grounds that the competent authority had no jurisdiction to issue such a notice after having decided not to initiate proceedings on May 10, 1979. The court found that the notice was issued on the directions of the Commissioner of Income Tax, which was evident from the order sheet and the letters exchanged between the competent authority and the Commissioner. The competent authority had initially decided that "No action is necessary" on May 10, 1979, but later issued the notice under the Commissioner's instructions without any fresh material. The court held that the notice was void ab initio as the competent authority had not acted independently but under the direction of the Commissioner.

2. Jurisdiction and Authority of the Commissioner of Income Tax to Direct the Competent Authority:
The court examined whether the Commissioner of Income Tax had the authority to direct the competent authority to initiate proceedings under Section 269D(1). It was contended that the Commissioner only had supervisory powers and could not direct the competent authority in matters of a judicial nature. The court referenced several cases, including Purtabpur Company Ltd. v. Cane Commissioner of Bihar and Commissioner of Police, Bombay v. Gordhandas Bhanji, to emphasize that a statutory authority like the competent authority must act independently and cannot abdicate its powers in favor of another authority, including the Commissioner. The court concluded that the competent authority had unlawfully acted on the Commissioner's directions, rendering the proceedings invalid.

3. Whether the Competent Authority Had Fresh Material to Initiate Proceedings:
The court scrutinized whether any fresh material had come into the possession of the competent authority after May 10, 1979, which could justify the initiation of proceedings. The competent authority had initially rejected the valuation report from the Assistant Valuation Officer, deeming it "incorrect and unreliable." Despite this, the Commissioner directed the initiation of proceedings based on the same report. The court found that no new material had surfaced to warrant a change in the competent authority's initial decision. Therefore, the proceedings were initiated without any fresh basis, further invalidating the notice.

4. Nature of Proceedings under Section 269C of the Income Tax Act:
The court discussed whether the proceedings under Section 269C are administrative or quasi-judicial. It was argued that the proceedings up to the issuance of a notice under Section 269D(1) are administrative, and only after the notice does the process become quasi-judicial. However, the court emphasized that even administrative proceedings require the competent authority to act independently and not under external directions. The court cited various judgments, including Rai Bahadur G. V. Swaika Estate P. Ltd. v. M. N. Tewari, to support its view that the competent authority must have "reason to believe" based on its own assessment before initiating proceedings.

Conclusion:
The court concluded that the notice dated July 26, 1979, issued under Section 269D(1) of the Income Tax Act, 1961, was invalid as it was issued on the directions of the Commissioner of Income Tax without any fresh material. The competent authority had not acted independently, and the proceedings were thus void ab initio. The court made the rule absolute, quashed the notice, and awarded costs to the petitioner.