1994 (2) TMI 92 - AT - Income Tax

Assessing Officer, Assessment Notice, Assessment Proceedings, Assessment Year, Chargeable To Tax, Deduction Of Interest, Original Assessment, Reassessment Notice, Reassessment Proceedings, Reopening Assessment

Summary

Issues Involved:
1. Validity of the reassessment notices issued under section 148.
2. Whether the Income-tax Officer had reasonable grounds to believe that income chargeable to tax had escaped assessment.

Detailed Analysis:

1. Validity of the Reassessment Notices Issued Under Section 148:

The assessee challenged the reassessment notices issued under section 148 on the grounds that they were invalid and consequently rendered the reassessments void in law. The notices required the assessee to deliver returns within thirty days from the date of service. However, the amended provision of section 148, effective from 1-4-1989, required the Income-tax Officer to issue a notice giving the assessee a minimum period of thirty days. The Central Board of Direct Taxes clarified that the amended law would apply to all matters pending as of 1-4-1989. Since the initiation of the reassessment proceedings was subsequent to this date, the amended section 148 applied. The notices in question did not conform to this requirement, rendering them defective.

The Tribunal referred to the unreported judgment of the Karnataka High Court in the case of Winter Care (P.) Ltd., where a similar notice was quashed for not conforming to the amended section 148(1). The Tribunal also cited several precedents, including the Supreme Court's decisions in Y. Narayana Chetty v. ITO and CIT v. Kurban Hussain Ibrahimji Mithiborwala, which established that a defective notice under section 148 invalidates the entire reassessment proceedings. The Tribunal concluded that the notices issued were bad in law, and the consequential reassessments were illegal and void.

2. Reasonable Grounds for Belief of Income Escaping Assessment:

The second issue addressed was whether the Income-tax Officer had reasonable grounds to believe that income chargeable to tax had escaped assessment. The reasons recorded by the Income-tax Officer on 22-8-1990 indicated that during the assessment for 1989-90, it was noticed that the assessee had introduced cash credits in the names of relatives of the partners, and enquiries revealed that the creditors did not have the source of funds. This led the Income-tax Officer to believe that taxable income had escaped assessment.

The assessee argued that the Income-tax Officer did not have any fresh information and was merely entertaining a suspicion. The Tribunal examined the reasons recorded and found that the Income-tax Officer had reasonably formed the belief based on the facts available. The Tribunal held that the pre-condition for the exercise of jurisdiction under section 147 was fulfilled, as the Income-tax Officer had a reasonable basis to believe that income had escaped assessment.

Conclusion:

The Tribunal concluded that the reassessment notices issued under section 148 were defective and did not conform to the amended law, rendering the reassessments illegal and void. Additionally, while the Income-tax Officer had reasonable grounds to believe that income had escaped assessment, the defective notices invalidated the entire reassessment process. The appeals by the assessee were allowed, and the reassessments were cancelled.