1972 (12) TMI 2 - SC - Income Tax

Reopening of assessment - notice u/s 34(1) - validity - there was no any relevant material before the Income-tax Officer before he issued the notices under section 34(1)(a) to have reason to believe that as a result of the assessee's failure to state in its return truly and fully any fact, any income had escaped assessment

Summary

Issues:
1. Validity of notices issued under section 34(1)(a) of the Indian Income-tax Act, 1922.
2. Conditions necessary for an Income-tax Officer to issue a notice under section 34(1)(a).
3. Requirement of relevant material before an Income-tax Officer to believe that income has escaped assessment.
4. Failure to produce relevant records by the Income-tax Officer and the adverse inference drawn.

Analysis:

The Supreme Court judgment dealt with the validity of notices issued under section 34(1)(a) of the Indian Income-tax Act, 1922. The appeals arose from writ petitions filed by a Hindu undivided family challenging the notices issued by the Income-tax Officer. The High Court had quashed the impugned notices, leading to the appeals. The assessment years in question ranged from 1942-43 to 1953-54. The Income-tax Officer sought to reopen assessments finalized years earlier, which was contested by the assessee.

Before issuing a notice under section 34(1)(a), the Income-tax Officer must have a reason to believe that income has escaped assessment due to the assessee's failure to disclose all material facts. The officer must record reasons for such belief, and the Central Board of Revenue must be satisfied with those reasons to issue the notice. The presence of relevant material is crucial for the Income-tax Officer to form a belief that income has escaped assessment.

Referring to previous judgments, the court emphasized the importance of relevant material for the Income-tax Officer to believe that income has escaped assessment. Vague feelings or incomplete information are insufficient grounds to issue notices under section 34(1)(a). The Central Board of Revenue must independently assess the reasons given by the Income-tax Officer before reaching a decision on proceeding under this section.

In this case, the assessee contended that there was no relevant material before the Income-tax Officer to justify the issuance of notices under section 34(1)(a). Despite requests, the Income-tax Officer failed to produce the report made to the Central Board of Revenue or the Board's order. An affidavit stated that the relevant records were missing, but the absence of these documents raised suspicion. The court inferred that the records were not produced because they did not support the department's case, leading to the conclusion that jurisdiction to proceed under section 34(1)(a) was not established.

The department's argument regarding the sale of land by the assessee was deemed insufficient as there was no basis provided for the conclusion. The court highlighted that the cash credit entries were previously brought to the Income-tax Officer's attention, and without substantial evidence, the notices under section 34(1)(a) lacked a valid basis. Consequently, the appeals were dismissed, emphasizing the necessity of relevant material and proper procedure in issuing such notices.