2009 (7) TMI 103 - HC - Income Tax

Challenge to the notice issued u/s 148 held that - as stipulated under Section 147/148 of the Act, it is not necessary for the revenue to establish to the entire satisfaction of the respondent reasonable belief based on which the notice came to be issued under Section 148 - the assesses have adopted a sinister motive in challenging the notice under Section 148 of the Income Tax Act and thereby thwarted the reassessment proceedings till this date - exemplary costs awarded as against the assessees

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Legality of the provisional attachment order under Section 281B of the Income Tax Act.
3. The effect of the alleged concession made by the learned Standing Counsel for the appellant.
4. The sufficiency of "reason to believe" for reopening the assessment under Section 147 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act:
The Revenue challenged the order of the single judge that set aside the notice issued under Section 148 dated 18.11.2004. The notice was issued because the assessing authority had a "reason to believe" that the income chargeable to tax for the assessment year 2000-01 had escaped assessment. The court emphasized that the notice was based on sufficient material, including a SEBI report indicating potential discrepancies in the sale of shares by the assessee. The assessees had sold shares at a lower price to third parties, who later sold them at significantly higher prices. The proceeds from these sales were reflected in the accounts of the assessee, suggesting that income had escaped assessment. The court concluded that the notice under Section 148 was valid, as it was based on reasonable grounds for the belief that income had escaped assessment.

2. Legality of the Provisional Attachment Order Under Section 281B of the Income Tax Act:
The provisional attachment order dated 25.11.2004 attached deposits held by the assessee under the Capital Gain Scheme (CGS). The court noted that the deposits were not maintained in compliance with Section 54EB, which requires a seven-year deposit period without any lien or loan against it. The Chief Manager of Union Bank of India confirmed that the deposits were converted into normal FDRs and loans were secured against them. This non-compliance justified the provisional attachment under Section 281B. The court upheld the legality of the provisional attachment order.

3. The Effect of the Alleged Concession Made by the Learned Standing Counsel for the Appellant:
The court examined the alleged concession made by the learned Standing Counsel, who supposedly conceded that the objections raised by the assessee were not considered while concluding that the assessment proceedings were validly reopened. The court referred to several Supreme Court decisions, emphasizing that a wrong concession on a question of law made by counsel is not binding on the client and cannot constitute a binding precedent. The court found that the concession, if made, was erroneous and did not reflect the factual situation. The order dated 21.03.2005, which rejected the objections and justified the reassessment, was based on a detailed consideration of the objections. The court allowed the appellant to resile from the concession, as it was contrary to the statutory provisions and the actual facts.

4. The Sufficiency of "Reason to Believe" for Reopening the Assessment Under Section 147 of the Income Tax Act:
The court reiterated that for issuing a notice under Section 148, the assessing officer must have a "reason to believe" that income chargeable to tax has escaped assessment. The court referred to the Supreme Court's decisions, which held that the formation of belief by the assessing officer is within the realm of subjective satisfaction and that there must be relevant material to support the belief. The court found that the materials available, including the SEBI report and the bank manager's statements, were sufficient to constitute a "reason to believe." The court emphasized that the sufficiency or correctness of the material is not to be considered at the stage of issuing the notice but can be challenged during the reassessment proceedings.

Conclusion:
The court allowed the appeals, set aside the order of the single judge, and upheld the validity of the notice issued under Section 148 and the provisional attachment order under Section 281B. The court imposed a cost of Rs.10,000 on each of the writ petitioners, payable to the appellant/Revenue, and dismissed the writ petitions. The court's decision was based on the sufficiency of the material for the "reason to believe" and the erroneous nature of the alleged concession made by the learned Standing Counsel.

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