1976 (11) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer (ITO) to issue reassessment notices.
3. Adequacy of material for ITO's belief of income escapement.
4. Compliance with procedural requirements under Section 147(a) and Section 148 of the Act.
5. Whether the Commissioner of Income-tax mechanically accorded permission for reassessment.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued under Section 148 of the Income-tax Act, 1961:
The petitioner sought to quash notices issued under Section 148 for the assessment years 1963-64 to 1968-69, arguing that there was no non-disclosure of material facts and that all primary facts had been disclosed during the original assessment. The court examined the material facts, including the petitioner's claim of borrowing Rs. 50,000 from a Calcutta company, which was later found to be a dummy concern engaged in name-lending. The court held that the reassessment notices were valid as the ITO had reasonable grounds to believe that income had escaped assessment due to non-disclosure of material facts.

2. Jurisdiction of the Income-tax Officer (ITO) to Issue Reassessment Notices:
The court referred to the Supreme Court's ruling in Income-tax Officer v. Lakhmani Mewal Das, which stated that two conditions must be satisfied for the ITO to issue a notice under Section 148: (1) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) such income must have escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court found that both conditions were met in this case, thus conferring jurisdiction on the ITO to issue the reassessment notices.

3. Adequacy of Material for ITO's Belief of Income Escapement:
The petitioner argued that the ITO did not have sufficient material to form a belief that income had escaped assessment. The court examined the letter from the ITO, Calcutta, which confirmed that the Calcutta company was a dummy concern involved in name-lending. This information was deemed sufficient to form a reasonable belief that the petitioner's income had escaped assessment. The court distinguished this case from Chhugamal Rajpal v. S. P. Chaliha, where the ITO had acted on a general circular without specific information.

4. Compliance with Procedural Requirements under Section 147(a) and Section 148 of the Act:
The court emphasized that the ITO must record his reasons before initiating proceedings under Section 148(2) and that the Commissioner's sanction is required for notices issued after four years from the end of the relevant assessment year. The court found that the ITO had complied with these procedural requirements, as he had recorded his reasons and obtained the Commissioner's sanction before issuing the notices.

5. Whether the Commissioner of Income-tax Mechanically Accorded Permission for Reassessment:
The petitioner contended that the Commissioner had mechanically granted permission for reassessment without applying his mind. The court examined the Commissioner's endorsement of "yes" on the ITO's report and found that the report contained sufficient material to justify reopening the assessment. The court held that the Commissioner had not acted mechanically and had applied his mind to the material before granting permission.

Conclusion:
The court dismissed the petition, holding that the reassessment notices issued under Section 148 were valid, the ITO had jurisdiction to issue them, there was adequate material for the ITO's belief of income escapement, procedural requirements were complied with, and the Commissioner had not mechanically accorded permission for reassessment. The petition was dismissed with costs.