1985 (8) TMI 131 - AT - Income Tax

Summary

Issues:
- Interpretation of section 149(1)(a)(ii) of the Income-tax Act, 1961 regarding the amount of income that must have escaped assessment for issuing a notice under section 147(a).
- Validity of notice issued by the Income Tax Officer (ITO) under section 147(a) read with section 149(1)(a)(ii) when the income finally assessed is less than Rs. 50,000.

Analysis:
1. The primary issue in this case revolves around the interpretation of section 149(1)(a)(ii) of the Income-tax Act, 1961. The department argues that the ITO should have a belief that the income likely to exceed Rs. 50,000 at the time of issuing the notice under section 147(a). The department contends that there is no requirement for the finally assessed income to include an escapement of Rs. 50,000 or more. On the other hand, the assessee argues that both conditions must be satisfied for a valid notice: the income must have escaped assessment, and the amount should be Rs. 50,000 or more. The assessee emphasizes that the ITO must have concrete material supporting the belief that Rs. 50,000 or more has escaped assessment, not just a mere view. The ITO must carefully analyze all material to form a firm opinion before issuing a notice.

2. The tribunal analyzed the provisions of section 149(1)(a)(ii) and highlighted that sub-clause (i) applies when the escaped income is less than Rs. 50,000, while sub-clause (ii) applies when the escaped income is Rs. 50,000 or more. The tribunal emphasized that the ITO must satisfy both conditions at the initiation of the notice: the income must have escaped assessment, and the amount of escapement should be Rs. 50,000 or more. Referring to legal precedents, the tribunal cited the Kerala High Court and the Punjab and Haryana High Court judgments. The Kerala High Court held that the belief formed by the ITO should be based on the income amounting to Rs. 50,000 or more at the time of assessment. The Punjab and Haryana High Court ruled that if the finally assessed income is less than Rs. 50,000, the reopening is invalid. In this case, the tribunal found that the notices were issued after 13 and 12 years for the two assessment years, and the added unexplained income was less than Rs. 50,000. Therefore, the tribunal upheld the order of the Commissioner (Appeals) and dismissed the departmental appeals.