1975 (5) TMI 4 - HC - Income Tax

Assessment Year, Burden Of Proof, Income Tax, Jurisdiction Of High Court, Notice Of Reassessment, Previous Year, Works Contract

Issues Involved:
1. Maintainability of the writ petition under Article 226.
2. Disclosure of primary facts by the assessee.
3. Jurisdiction of the Income-tax Officer to issue notices under section 148.
4. Validity of the Commissioner's sanction under section 151(2).
5. Effect of the settlement between the assessee and the revenue on the reopening of assessments.

Detailed Analysis:

Issue 1: Maintainability of the Writ Petition
The court first addressed the maintainability of the writ petition under Article 226. The respondents argued that the petitioner should exhaust the statutory remedies available under the Income-tax Act before approaching the High Court. However, the court referenced the Supreme Court's decisions in Calcutta Discount Company Ltd. v. Income-tax Officer and Madhya Pradesh Industries Ltd. v. Income-tax Officer to conclude that the existence of alternative remedies is not always a sufficient reason to refuse a writ petition. The court overruled the preliminary objection and decided to entertain the writ application.

Issue 2: Disclosure of Primary Facts by the Assessee
The petitioner contended that all primary facts were disclosed to the Income-tax Officer during the original assessments. The court examined the provisions of Section 147(a) and the relevant case law, including Calcutta Discount Co. Ltd. v. Income-tax Officer and Commissioner of Income-tax v. Bhanji Lavji, which emphasize the duty of the assessee to disclose all primary facts necessary for assessment. The court found that the petitioner had indeed disclosed all primary facts, including the work-site account, in the balance-sheets and account books produced during the original assessments. The court concluded that there was no failure on the part of the assessee to disclose primary facts, making the reassessment proceedings under Section 147(a) untenable.

Issue 3: Jurisdiction of the Income-tax Officer to Issue Notices
The court scrutinized whether the Income-tax Officer had "reason to believe" that income had escaped assessment due to non-disclosure of material facts. The court noted that the Income-tax Officer's belief was based on findings from the assessment year 1970-71, which had been overturned by the Appellate Tribunal. The court cited Sheo Nath Singh v. Appellate Assistant Commissioner to emphasize that the belief must be honest and reasonable, based on relevant grounds. The court concluded that the Income-tax Officer lacked a bona fide belief that income had escaped assessment, thus invalidating the notices under Section 148.

Issue 4: Validity of the Commissioner's Sanction
The court examined the process of obtaining the Commissioner's sanction under Section 151(2). It found that the Income-tax Officer had not fully disclosed the true state of affairs to the Commissioner, particularly the Tribunal's decision overturning the findings for the assessment year 1970-71. The court referenced Chhugamal Rajpal v. S.P. Chaliha to highlight that mechanical sanction by the Commissioner is not valid. The court concluded that the sanction was not properly obtained, rendering the initiation of proceedings without jurisdiction.

Issue 5: Effect of the Settlement Between the Assessee and the Revenue
The petitioner argued that the settlement with the revenue covered the work-site account, making the reopening of assessments legally untenable. The court noted the absence of a counter-affidavit from the Board of Direct Taxes or the Director of Inspection to refute the petitioner's claims. Given the detailed scrutiny of accounts during the settlement process, the court found it legitimate to assume that the work-site account was considered. However, since the court had already decided in favor of the petitioner on other grounds, it did not delve further into this issue.

Conclusion:
The writ application was allowed, and the notices under Section 148 were quashed. The court awarded costs to the assessee, with a hearing fee of rupees two hundred.

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