1977 (5) TMI 13 - HC - Income Tax

Assessment Proceedings Income Tax Act Notice Of Reassessment Original Assessment Reassessment Proceedings Writ Petition

Summary

Issues Involved
1. Justification for initiating proceedings under Section 147(a) of the Income-tax Act, 1961.
2. Applicability of Section 147(b) and the bar of limitation under Section 149(2).
3. Conditions precedent to the initiation of proceedings under Section 147.
4. Validity of the notice issued under Section 148.
5. The existence of new material or change of opinion.
6. Validity of the sanction by the Central Board of Direct Taxes.
7. Question of alternative remedy under Article 226(3) of the Constitution.

Detailed Analysis

1. Justification for Initiating Proceedings under Section 147(a) of the Income-tax Act, 1961
The petitioner contended that all material facts were disclosed during the original assessment for the year 1958-59 under Section 23(3) of the Indian Income-tax Act, 1922. The Income-tax Officer had no justification to initiate proceedings under Section 147(a) of the Act since there was no omission or failure to disclose fully and truly any material facts. The court found that all the primary facts were indeed disclosed, and the Income-tax Officer had accepted the explanations provided during the original assessment.

2. Applicability of Section 147(b) and the Bar of Limitation under Section 149(2)
The petitioner argued that if the notice under Section 148 was based on Section 147(b), the initiation of the proceeding was barred by time under Section 149(2). The court noted that the revenue's stand was that the notice was issued under Section 147(a), not Section 147(b). Therefore, the bar of limitation under Section 149(2) was not applicable in this case.

3. Conditions Precedent to the Initiation of Proceedings under Section 147
The petitioner argued that the conditions precedent to the initiation of proceedings under Section 147 were not satisfied. The Income-tax Officer must have reason to believe that income had escaped assessment due to the assessee's omission or failure to disclose fully and truly all material facts. The court found that the Income-tax Officer had all the material facts before him during the original assessment and had accepted the assessee's explanations. Therefore, the conditions precedent were not met.

4. Validity of the Notice Issued under Section 148
The petitioner sought to quash the notice issued under Section 148, arguing it was untenable in law. The court found that the notice was invalid because it was based on the same material facts that were already considered during the original assessment. The reopening of the assessment was due to a change of opinion rather than new material facts.

5. The Existence of New Material or Change of Opinion
The court noted that the Income-tax Officer's report for obtaining sanction referred to materials already considered during the original assessment. The court emphasized that the reopening of the assessment was based on a change of opinion rather than new material facts, making the proceeding unsustainable.

6. Validity of the Sanction by the Central Board of Direct Taxes
The petitioner questioned the validity of the sanction accorded by the Central Board of Direct Taxes. The court did not delve deeply into this issue as the original order of sanction was not produced. However, the court noted that the sanction was given after due consideration of the materials on record and was in accordance with the law.

7. Question of Alternative Remedy under Article 226(3) of the Constitution
The revenue argued that the application should abate under Article 226(3) of the Constitution, claiming that alternative remedies were available under the Income-tax Act. The court rejected this argument, stating that there was no alternative forum for the relief claimed by the petitioner. The court emphasized that writ applications have been entertained for quashing notices under Section 148, and the petitioner had no alternative remedy to vacate the notice.

Conclusion
The court allowed the writ application, quashed the notice under Section 148 of the Act, and issued a writ of prohibition to prevent further action based on the notice. The application was allowed with costs, and the hearing fee was assessed at rupees two hundred.