2009 (9) TMI 27 - HC - Income Tax

Validity and legality of notice issued u/s 148 held that - The essential requirement for initiating reassessment proceeding u/s 147, read with sec. 148 is that the assessing authority must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. - The High Court in the exercise of its jurisdiction under article 226 of the Constitution can interfere in a writ petition against a notice u/s 148 of the Act when it is of the opinion that there is no material in possession of the assessing authority on which reasonably an opinion can be formed that the income has escaped assessment - the amount of ₹ 8, 34,720 was not credited in the profit and loss account even though it was mentioned in the balance sheet, however, it cannot be said that mere production of the account books before the Assessing Officer would amount to discloser within the meaning of explanation 1 to Section 147, since the same could have been discovered by the Assessing Officer only with due diligence notice issued u/s 148 held to be valid and legal.

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer in initiating reassessment proceedings under Section 147.
3. Alleged change of opinion by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act:
The petitioner challenged the notice issued under Section 148 dated 10.07.2003 for the assessment year 2000-01, arguing that the initiation of proceedings was based on a mere change of opinion, which is without jurisdiction. The petitioner contended that the Assessing Officer had already scrutinized the balance sheet, profit and loss account, and other documents during the original assessment under Section 143(3) and that revisiting these amounts to a review of the earlier order.

The court examined the reasons recorded by the Assessing Officer for issuing the notice under Section 148, which included the non-allowability of Rs. 5,41,850/- as prior period adjustments and the non-inclusion of Rs. 8,34,720/- as interest on corporate deposits. The court found that these items were not discussed in the original assessment order, indicating a lack of application of mind by the Assessing Officer.

2. Jurisdiction of the Assessing Officer in Initiating Reassessment Proceedings under Section 147:
The court referred to the amended Section 147 of the Income Tax Act, which allows the Assessing Officer to reassess income if there is reason to believe that any income chargeable to tax has escaped assessment. The court highlighted that the mere production of account books or other evidence does not amount to disclosure within the meaning of Section 147, as per Explanation 1.

The court cited various Supreme Court judgments, including Kalyanji Mavji & Co. vs. Commissioner of Income-Tax, Indian and Eastern Newspaper Society vs. Commissioner of Income-Tax, and A.L.A. Firm vs. Commissioner of Income-Tax, to establish that reassessment is permissible when the Assessing Officer discovers new facts or law that were not considered during the original assessment.

3. Alleged Change of Opinion by the Assessing Officer:
The petitioner relied on the Full Bench decision of the Delhi High Court in Commissioner of Income Tax vs. Kelvinator of India Ltd., which held that a mere change of opinion does not justify reassessment. However, the court disagreed with this view, emphasizing that the Delhi High Court's decision did not consider the implications of Explanation 1 and Explanation 2 to Section 147.

The court noted that reassessment is justified when the original assessment order does not contain any discussion on a particular issue, indicating that the Assessing Officer did not form any opinion on the matter. The court also referred to the Gujarat High Court's decision in Praful Chunilal Patel vs. M.J. Makwana, which supported the view that reassessment is permissible if the Assessing Officer discovers that certain income was not assessed.

Conclusion:
The court concluded that the initiation of reassessment proceedings under Section 147 was valid and in accordance with the law. It held that the Assessing Officer had the jurisdiction to issue the notice under Section 148, as the original assessment order did not reflect any application of mind regarding the disputed items. The writ petition was dismissed, and the notice under Section 148 was upheld.

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