1968 (12) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue a notice under section 148 of the Income-tax Act, 1961.
2. The validity of the belief formed by the Income-tax Officer regarding income escaping assessment.
3. The sufficiency and reliability of the information leading to the issuance of the notice.
4. The role of the Central Board of Revenue's satisfaction in issuing the notice under section 148 after eight years.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to issue a notice under section 148 of the Income-tax Act, 1961:
The petitioner was assessed to income-tax for the assessment year 1948-49. On 27th March 1965, a notice under section 148 of the Income-tax Act, 1961, was served on the petitioner, stating that the Income-tax Officer had reason to believe that the petitioner's income had escaped assessment. The petitioner challenged this notice, arguing that the Income-tax Officer lacked jurisdiction to issue it. The court relied on the Supreme Court's decisions in Calcutta Discount Co. Ltd. v. Income-tax Officer and S. Narayanappa v. Commissioner of Income-tax, which established that the Income-tax Officer must have "reason to believe" that income had been under-assessed due to the assessee's omission or failure to disclose fully and truly all material facts necessary for the assessment.

2. The validity of the belief formed by the Income-tax Officer regarding income escaping assessment:
The petitioner argued that the belief formed by the Income-tax Officer was based on erroneous assumptions and arbitrary grounds. The court noted that the belief must be held in good faith and have a rational connection to the information in possession. The court found that the Income-tax Officer had gathered information through inquiries that the petitioner had operated a bank account in the benami name of his nephew, which led to the belief that income had escaped assessment. The court held that the existence of the belief could be challenged, but not the sufficiency of the reasons for the belief.

3. The sufficiency and reliability of the information leading to the issuance of the notice:
The petitioner contended that the reasons for the Income-tax Officer's belief were arbitrary and based on incorrect assumptions. The court emphasized that the Income-tax Officer must have reasonable grounds for the belief, which must be based on reliable and dependable information. The court found that the Income-tax Officer had conducted inquiries and formed a prima facie finding that the information was true and correct. The court concluded that the information in possession and the further finding that it could be acted upon constituted reasonable grounds for the belief.

4. The role of the Central Board of Revenue's satisfaction in issuing the notice under section 148 after eight years:
The petitioner argued that the sanction of the Central Board of Revenue was vitiated because it was based on arbitrary, erroneous, or unreasonable reasons recorded by the Income-tax Officer. The court noted that section 151 of the Act requires the Central Board of Revenue's satisfaction on the reasons recorded by the Income-tax Officer for issuing a notice after eight years. The court found that the Income-tax Officer had reliable information and had formed a belief based on that information, which warranted action under section 147 of the Act. Therefore, the court held that the sanction of the Central Board of Revenue was valid.

Conclusion:
The court concluded that the Income-tax Officer had reasonable grounds and a rational connection between the information and the belief that income had escaped assessment. The challenge to the notice under section 148 of the Act on the grounds of lack of jurisdiction and arbitrary belief was dismissed. The rule was discharged, and all interim orders were vacated. There was no order as to costs.