1974 (4) TMI 29 - HC - Income Tax

1922 Act, Act Of 1961, Assessment Order, Association Of Persons, Change Of Law, Finding Or Direction, Jurisdiction To Reassess, Notice Of Reassessment, Reassessment Of Firm

Issues Involved:
1. Validity of notices issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to issue said notices.
3. Application of Section 297(2)(d)(ii) of the Income-tax Act, 1961.
4. Whether the income had escaped assessment within the meaning of Section 147.
5. Whether the assessment was barred by limitation under Section 34(3) of the Income-tax Act, 1922.
6. Whether the findings and directions of the Income-tax Appellate Tribunal could lift the bar of limitation.
7. Validity of the writ applications under Article 226 of the Constitution of India.

Detailed Analysis:

Group I:
Issue: Validity of Notices under Section 148 of the Income-tax Act, 1961

The petitioner-firm, M/s. C. M. Rajgharia, challenged the notices dated March 16, 1971, issued under Section 148 of the Income-tax Act, 1961, for the assessment years 1954-55 to 1957-58. The firm contended that the right of the department to make an assessment for these years had been extinguished under Section 34(3) of the Income-tax Act, 1922, and could not be revived by Section 297(2)(d)(ii) of the 1961 Act. The court held that the impugned notices were without jurisdiction, as the assessments had become time-barred under the 1922 Act and could not be treated as cases of income escaping assessment under Section 147(a) of the 1961 Act.

Issue: Jurisdiction of the Income-tax Officer

The court examined whether the Income-tax Officer had "reason to believe" that income had escaped assessment and found that there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The court concluded that Section 147(a) could not apply, and the notices must be treated as being in respect of alleged escapement of assessment of income within the meaning of Section 147(b) of the 1961 Act.

Issue: Application of Section 297(2)(d)(ii) of the Income-tax Act, 1961

The court held that a time-barred assessment under the 1922 Act does not partake of the nature of an escaped assessment within the meaning of Section 147(a) and cannot be availed of by virtue of the provisions contained in Section 297(2)(d)(ii) of the 1961 Act.

Issue: Whether the Income had Escaped Assessment within the Meaning of Section 147

The court found that the existence of the belief of escapement of income could be challenged, but not the sufficiency of the reasons for the belief. The court held that the decision of the Tribunal could be treated as information within the meaning of Section 147(b), but the notices were not justified as they were not issued within the stipulated time frame.

Issue: Whether the Assessment was Barred by Limitation under Section 34(3) of the Income-tax Act, 1922

The court held that the assessments had become barred under Section 34(3) of the 1922 Act and could not be reopened under the 1961 Act.

Issue: Whether the Findings and Directions of the Income-tax Appellate Tribunal could Lift the Bar of Limitation

The court held that the exceptions to the rule of limitation were not applicable as the petitioner-firm was neither the assessee nor any person intimately connected with the assessee regarding the assessment of Chand Mull Rajgharia, an individual.

Group II:
Issue: Validity of Notices under Section 23(2) of the Income-tax Act, 1922

The petitioner-firm challenged the notices dated April 21, 1971, issued under Section 23(2) of the 1922 Act for the assessment years 1958-59 to 1961-62. The court held that the assessments had become barred under Section 34(3) of the 1922 Act, and the impugned notices were invalid.

Group III:
Issue: Validity of Notices under Section 148 of the Income-tax Act, 1961

Chand Mull Rajgharia, an individual, challenged the notices issued under Section 148 of the 1961 Act for the assessment years 1955-56 to 1958-59. The court held that there was no association of persons being the true assessee and that the provisions of the second proviso to Section 34(3) of the 1922 Act and Section 150(1) of the 1961 Act were not attracted.

Conclusion:
The court quashed all the impugned notices dated March 16, 1971, and April 21, 1971, issued under Sections 148 and 23(2) of the Income-tax Act, 1961, and 1922, respectively, against the petitioner-firm and Chand Mull Rajgharia. The respondents were restrained by a writ of prohibition from taking any action in pursuance of the aforesaid notices. The writ applications were allowed.

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