1966 (3) TMI 7 - HC - Income Tax

Notice u/s 147 - Whether the ITO was justified in assuming jurisdiction under s. 147(a) of the Act to reassess the income - held that ITO was wrong in determining that there has been a non-disclosure in regard to some relevant material facts and that income chargeable to tax has escaped assessment

Issues Involved:
1. Validity of the notice issued under section 147(a) of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to reassess the income for the year 1956-57.
3. Alleged non-disclosure of material facts by the petitioner.
4. The role of trial balance and cash balance in the reassessment process.

Issue-Wise Detailed Analysis:

1. Validity of the notice issued under section 147(a) of the Income-tax Act, 1961:
The petitioner challenged the notice issued by the respondent on 19th December 1964, under section 147 of the Income-tax Act, 1961, proposing to reassess the income for the assessment year 1956-57. The petitioner contended that the requirements of section 147(a) had not been satisfied before the respondent assumed jurisdiction to issue the notice for reassessment. The petitioner argued that all relevant information, including account books and money-lending statements, had been provided during the original assessment, and there was no material basis for the Income-tax Officer to believe there was non-disclosure leading to tax escapement.

2. Jurisdiction of the Income-tax Officer to reassess the income for the year 1956-57:
The court examined whether the Income-tax Officer had the jurisdiction to reassess the income under section 147(a). According to section 147, the Income-tax Officer must have reason to believe that there has been an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, leading to income chargeable to tax escaping assessment. The court emphasized that both conditions must co-exist for the Income-tax Officer to have the power to reassess the income. The court cited precedents stating that a tribunal cannot give itself jurisdiction by an erroneous decision on jurisdictional facts, and such decisions are reviewable by the High Court.

3. Alleged non-disclosure of material facts by the petitioner:
The Income-tax Officer's counter stated that the petitioner had not filed the trial balance or balance sheet and had not shown the cash balance on hand at the end of each year. The counter argued that these omissions led to a substantial increase in the lent capital, which was not commensurate with the income assessed. The court, however, found that the petitioner had been submitting returns and money-lending statements year after year, showing the total investment and growth in capital. The court noted that the Income-tax Officer was aware of the capital growth and had made inquiries about agricultural income, which were satisfactorily explained by the petitioner.

4. The role of trial balance and cash balance in the reassessment process:
The court analyzed whether the non-disclosure of the trial balance and cash balance could justify reassessment. It found that the petitioner had shown the total investment in money-lending each year, and the Income-tax Officer was aware of the capital growth. The court concluded that the non-disclosure of the trial balance or cash balance was not materially relevant to the assessment for the year 1956-57. The court stated that the Income-tax Officer's intention appeared to be a fishing or roving inquiry into the capital growth, which is not permissible under section 147(a). The court held that the two requirements of section 147 were not satisfactorily established, and the Income-tax Officer could not assume jurisdiction based on a wrong decision regarding the existence of jurisdictional facts.

Conclusion:
The court allowed the writ petition, prohibiting the respondent from reassessing the income for the year 1956-57. The court emphasized that the Income-tax Officer could not reassess the income based on alleged non-disclosure of immaterial facts and that jurisdictional facts must be correctly determined before issuing a notice under section 147(a). The court made no order as to costs and allowed an advocate's fee of Rs. 100.

← Previous Next →