2008 (8) TMI 45 - HC - Income Tax

Notice u/s 148 issued after expiry of 5 years AO had not formed any belief that the income of assessee had escaped assessment hence AO has no jurisdiction to issue the notice u/s 148 for reassessment notice is set aside holding it as invalid

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Compliance with the conditions under Section 147 of the Income Tax Act.
3. Jurisdiction of the Assessing Officer to issue the notice.
4. Requirement of reasons to believe for reopening assessment.
5. Role of the Commissioner of Income Tax in granting approval.
6. Timeliness of the notice issuance beyond the four-year period.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act:
The appellant challenged the notice dated 27.3.2007 issued by the Deputy Commissioner of Income Tax under Section 148, which aimed to assess/reassess the income for the assessment year 2000-2001, claiming it had escaped assessment. The Company contended that the Assessing Officer did not have valid reasons to believe that the income had escaped assessment due to the Company's failure to disclose material facts fully and truly, as required under Section 147.

2. Compliance with the Conditions Under Section 147 of the Income Tax Act:
The Company argued that the Assessing Officer must have reasons to believe that the income escaped assessment due to the failure of the assessee to disclose all material facts. The Court emphasized that for the notice to be valid, the Assessing Officer must satisfy two conditions: (i) he had reason to believe that any income had escaped assessment, and (ii) such escapement was due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

3. Jurisdiction of the Assessing Officer to Issue the Notice:
The Court analyzed whether the Assessing Officer had jurisdiction to issue the notice under Section 148. It was found that the Assessing Officer merely suggested to the Commissioner that an investigation was necessary without forming a belief that the income had escaped assessment due to the assessee's failure to disclose material facts. This lack of a formed belief rendered the notice invalid.

4. Requirement of Reasons to Believe for Reopening Assessment:
The Court reiterated that the expression "reason to believe" in Section 147 is crucial and cannot be based on mere suspicion or for conducting investigations. The Assessing Officer must form a belief based on the materials available that the income escaped assessment due to the assessee's failure to disclose material facts. The Court found that the reasons recorded by the Assessing Officer were ambiguous and vague, failing to meet this requirement.

5. Role of the Commissioner of Income Tax in Granting Approval:
The Court examined the role of the Commissioner in granting approval for the notice under Section 148. It was noted that the Commissioner must be satisfied with the reasons recorded by the Assessing Officer. However, in this case, the Commissioner approved the notice based on ambiguous and vague reasons provided by the Assessing Officer, which did not satisfy the statutory requirements.

6. Timeliness of the Notice Issuance Beyond the Four-Year Period:
The notice was issued after the expiry of more than five years from the assessment year 2000-2001. The Court emphasized that for notices issued beyond four years, it is mandatory to show that the income escaped assessment due to the assessee's failure to disclose material facts. The Assessing Officer's failure to establish this rendered the notice invalid.

Conclusion:
The Court concluded that the Assessing Officer did not have valid reasons to believe that the income escaped assessment due to the assessee's failure to disclose material facts. Consequently, the notice issued under Section 148 and the subsequent proceedings were invalid. The Court set aside the impugned order and allowed the Writ Appeal, emphasizing the necessity for the Assessing Officer to comply with the statutory requirements under Sections 147 and 148 of the Income Tax Act.

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