2006 (1) TMI 47 - HC - Income Tax

Reassessment Capital Gains arising from sale of shares was not assessed in the original assessment proceedings For issuing notice u/s 148 AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year notice u/s 148 held as valid

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income-tax Act.
2. Jurisdiction of the Assessing Officer to initiate reassessment proceedings.
3. Sufficiency of material to form a belief that income has escaped assessment.
4. Application of Explanation 2 to section 147 of the Income-tax Act.
5. Relevance of the petitioner's reliance on previous case law.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the validity of the notice dated March 28, 2005, issued under section 148 of the Income-tax Act, claiming that there was no material in possession of the Assessing Officer to form a belief that income had escaped assessment. The court found that the Assessing Officer had sufficient material, including the name of the broker, bank account details, and transaction amounts, to justify the issuance of the notice.

2. Jurisdiction of the Assessing Officer to Initiate Reassessment Proceedings:
The petitioner argued that the Assessing Officer lacked jurisdiction to initiate reassessment proceedings under section 148. The court held that the essential requirement for initiating reassessment proceedings under section 147, read with section 148, is that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment. The court found that the Assessing Officer had valid reasons to believe that income had escaped assessment, thus justifying the initiation of reassessment proceedings.

3. Sufficiency of Material to Form a Belief That Income Has Escaped Assessment:
The petitioner contended that there was no material in possession of the Assessing Officer to form a belief that income had escaped assessment. The court noted that the Assessing Officer had collected material from the broker, Ashok Gupta & Co., Delhi, indicating fictitious entries of long-term capital gains. The court emphasized that the sufficiency of material to form a reason to believe cannot be the subject-matter of writ jurisdiction, and found that the Assessing Officer had sufficient material to form a belief that income had escaped assessment.

4. Application of Explanation 2 to Section 147 of the Income-tax Act:
The court referred to Explanation 2 to section 147, which enumerates cases where it shall be deemed that income chargeable to tax has escaped assessment. Clause (b) of Explanation 2 states that if an assessee has understated income or claimed excessive loss, deduction, allowance, or relief in the return, it is a case of deemed escapement of assessment. The court found that the petitioner's argument that all disclosures were made during the assessment proceedings was of little consequence, as the Assessing Officer had failed to examine the income from the sale of shares by long-term capital gains.

5. Relevance of the Petitioner's Reliance on Previous Case Law:
The petitioner relied on an unreported judgment in Das Friends Builders P. Ltd. v. Dy. CIT to argue against the reassessment proceedings. The court found this case distinguishable, as it was decided on its own facts and involved a different assessment year (1995-96). The court concluded that the previous case law had hardly any application to the present case, and that the department had sufficient material to initiate reassessment proceedings against the petitioner.

Conclusion:
The court dismissed the writ petition, finding no merit in the petitioner's arguments. The court held that the Assessing Officer had sufficient material to initiate reassessment proceedings and that the issuance of the notice under section 148 was justified. The court emphasized that the sufficiency of material to form a reason to believe cannot be the subject-matter of writ jurisdiction, and found no justification to interfere with the reassessment proceedings at this stage. The writ petition was dismissed in limine, with no order as to costs.