1975 (6) TMI 18 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the ITO to initiate proceedings under Section 147 of the IT Act, 1961.
2. Validity of notices issued under Section 148 of the IT Act, 1961, in relation to the time limit specified in Section 149 of the Act.
3. Whether the income chargeable to tax that had escaped assessment amounted to or was likely to amount to Rs. 50,000 or more for each year.
4. Whether there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.

Detailed Analysis:

1. Jurisdiction of the ITO to Initiate Proceedings under Section 147 of the IT Act, 1961:
The common contention in these appeals was that the ITO lacked jurisdiction to initiate proceedings under Section 147 of the IT Act, 1961. The ITO's initiation of proceedings was based on information obtained from a search conducted at the premises of Rai Bahadur Ramprasad Rajgarhia, which allegedly revealed concealed income. The ITO submitted a proposal to the CBDT under Section 147(1) of the Act, stating that the concealed income assessable to tax exceeded Rs. 1 lakh for each year. However, the Tribunal found that the ITO's report did not set out any reason for coming to the conclusion that the income that had escaped assessment was likely to amount to Rs. 50,000 or more. The Tribunal held that the ITO had not provided sufficient material to form a bona fide belief as required under Section 149(1)(a)(ii) of the Act, and thus, the assessments were annulled.

2. Validity of Notices Issued under Section 148 of the IT Act, 1961:
The assessee contended that the notices issued under Section 148 were barred by limitation as they were served after the expiry of the time limit specified in Section 149 of the Act. The Tribunal noted that the notices were issued on 18th January 1966 and served on 25th January 1966, which was beyond the 8-year period from the end of the respective assessment years. The Tribunal concluded that the ITO did not have a bona fide belief that the escaped income was likely to amount to Rs. 50,000 or more, and therefore, the notices were invalid.

3. Whether the Income Chargeable to Tax that had Escaped Assessment Amounted to or was Likely to Amount to Rs. 50,000 or More for Each Year:
The Tribunal examined whether the ITO had reason to believe that the escaped income was likely to amount to Rs. 50,000 or more for each year. The ITO's proposal stated that the concealed income was likely to amount to Rs. 42 to Rs. 45 lakhs in total and exceeded Rs. 1 lakh for each year. However, the Tribunal found that the ITO's statement was not supported by any material evidence. The Tribunal referenced the Supreme Court's decision in Chhugamal Rajpal vs. S.P. Chalirs & Ors., which emphasized the need for concrete reasons to believe that income had escaped assessment. The Tribunal concluded that the ITO's belief was not based on sufficient material, and thus, the condition laid down in Section 147 of the Act was not satisfied.

4. Whether There was an Omission or Failure on the Part of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Its Assessment:
The assessee argued that there was no omission or failure on its part to disclose all material facts necessary for its assessment. The Tribunal examined the assessee's replies dated 14th July 1965 and 4th December 1965, which indicated that the assessee intended to make a disclosure under Section 271(4A) of the Act. The Tribunal found that the assessee's intention to make a disclosure suggested that the books seized by the Department contained incriminating material that had not been disclosed earlier. Therefore, the Tribunal agreed with the Department's contention that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.

Conclusion:
The Tribunal annulled all the assessments on the ground that the ITO did not have a bona fide belief that the income chargeable to tax which had escaped assessment was likely to amount to Rs. 50,000 or more for each year. The Tribunal also found that the notices issued under Section 148 were barred by limitation. However, the Tribunal agreed with the Department that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The appeals were allowed, and the assessments were annulled.