1981 (2) TMI 56 - HC - Income Tax

Summary

Issues:
Jurisdiction of the Income-tax Officer to reopen assessment under section 147(a) of the Income Tax Act, 1961 based on undisclosed income.

Detailed Analysis:

The High Court of Madhya Pradesh considered a reference under section 256(1) of the Income Tax Act, 1961, regarding the jurisdiction of the Income-tax Officer to reopen an assessment under section 147(a). The case involved an assessee who had initially filed a return of income for the assessment year 1962-63, including income from various sources. Subsequently, during proceedings under the Wealth Tax Act for the assessment year 1963-64, it was discovered that the assessee had claimed a deduction of Rs. 36,000 as a loan from his wife for house construction, which was disallowed by the Wealth Tax Officer. The Income Tax Officer then reopened the assessment for 1962-63 to tax the Rs. 36,000 as undisclosed income used for house construction.

The Appellate Assistant Commissioner (AAC) held that the assessee had disclosed the annual letting value of the new construction in the original return, and therefore, the Income Tax Officer had no jurisdiction to reopen the assessment under section 147(a). The AAC set aside the reassessment order. The department appealed to the Tribunal, which upheld the AAC's decision. The Tribunal referred the question of law to the High Court.

The main issue for consideration was whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, as required under section 147(a) of the Act. Referring to the Supreme Court decision in ITO v. Lakmani Mewal Das, the High Court highlighted the two conditions for the Income Tax Officer to have jurisdiction to reassess under section 147(a): belief that income has escaped assessment and failure by the assessee to disclose material facts.

The High Court noted that the assessee had indeed disclosed the additional construction in the return for the assessment year in question. The court emphasized that there was no legal obligation on the assessee to show the source of investment in the return form. As the assessee had fully and truly disclosed all material facts necessary for assessment, the High Court held that the Income Tax Officer wrongly exercised jurisdiction in reopening the assessment under section 147(a).

Ultimately, the High Court answered the reference in favor of the assessee, stating that the Tribunal was correct in holding that the Income Tax Officer had no valid reason to reopen the assessment. Each party was directed to bear their own costs in this reference.