1966 (10) TMI 1 - SC - Income Tax

Validity of notice issued u/s 34(1)(a) - notice was issued validly and did not contravene the earlier orders of the High Court - appeal of department is allowed

Summary

Issues:
Validity of notice issued under section 34 of the Income-tax Act challenged before the Kerala High Court. Grounds of challenge included lack of reasons for believing income escaped assessment and lack of bona fides in issuing the notice. Single judge allowed the petition, quashing the notice on the ground of insufficient belief in the escape of income due to failure to disclose all material facts. Division Bench upheld the decision. Appeal before Supreme Court challenging the jurisdiction of High Court in quashing the notice on a ground not raised by the respondent.

Analysis:
The case involved a challenge to the validity of a notice issued under section 34 of the Income-tax Act before the Kerala High Court. The respondent contended that the notice lacked sufficient reasons to believe income had escaped assessment and was issued without bona fides. The single judge quashed the notice on the basis that the appellant did not have the required belief that income escaped due to the respondent's failure to disclose all material facts. The Division Bench upheld this decision. The appellant appealed to the Supreme Court, arguing that the High Court wrongly exercised its jurisdiction by quashing the notice on a ground not raised by the respondent.

The Supreme Court acknowledged that the respondent did not raise the specific ground regarding the appellant's belief in the escape of income due to the failure to disclose material facts in the petition or supporting affidavit. The Court noted that the High Court erred in inferring this ground from the affidavits without proper averments by the respondent. The Court emphasized that since neither party addressed this issue in their affidavits, the High Court should not have decided on this new ground. The Supreme Court found that the notice issued under section 34(1)(a) was valid based on the report submitted by the appellant to the Commissioner of Income-tax, indicating sufficient reasons to believe the income was under-assessed.

The respondent attempted to support the High Court's decision on the ground that the appellant did not comply with the requirement to record reasons for issuing the notice as per the proviso to section 34(1). However, this argument was not raised earlier and lacked necessary facts for consideration. The Court rejected this new ground. Additionally, the respondent alleged mala fides in issuing the notice, which the Court found to be adequately countered by the appellant's counter-affidavits. The Court concluded that the High Court's order was set aside, and the respondent's petition under article 226 of the Constitution was dismissed with costs in both the Supreme Court and the High Court.