1969 (11) TMI 20 - HC - Income Tax

Reassessment notice - reasonable belief to hold that any income of the petitioner has escaped assessment - jurisdiction to issue notice

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to reassess the petitioner's income under Section 147(b) of the Income-tax Act, 1961.
2. Validity of the "information" used to justify the reassessment notice.
3. Legality of reopening assessments based on suspicion and guesswork.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Reassess the Petitioner's Income:
The primary issue is whether the respondent (Income-tax Officer) has the jurisdiction to reassess the petitioner's income based on the notice issued under Section 148 of the Income-tax Act, 1961. The petitioner argued that the respondent lacked jurisdiction as the income had already been assessed and the explanation provided by the petitioner's wife regarding the construction of the house was accepted by the Income-tax Officer, C-III Ward. The court examined whether the "information" received by the respondent constituted valid grounds for reopening the assessment under Section 147(b) of the Act.

2. Validity of the "Information" Used to Justify the Reassessment Notice:
The court scrutinized the "information" that led to the issuance of the reassessment notice. According to the respondent, the information was based on the fact that the petitioner's wife did not have an independent source of income, leading to the conclusion that the investment in the house must have come from the petitioner. The court noted that the original assessment had already considered the petitioner's wife's explanation and accepted it. The court emphasized that for Section 147(b) to apply, the information must be more than "mere guess, gossip, or rumour" and should lead to a reasonable belief that income has escaped assessment.

3. Legality of Reopening Assessments Based on Suspicion and Guesswork:
The court found that the respondent's conclusion that the investment must have come from the petitioner was based on suspicion and not on concrete evidence. The court highlighted that the Income-tax Officer, C-III Ward, had already accepted the petitioner's wife's explanation and assessed her income accordingly. The court referred to the Supreme Court's ruling in Calcutta Discount Co. Ltd. v. Income-tax Officer, which stated that the belief must have a rational connection or relevant bearing to the formation of the belief and should not be based on extraneous or irrelevant factors. The court concluded that the respondent's action was based on a mere guess and suspicion, which is insufficient to reopen an assessment under Section 147(b).

Conclusion:
The court held that the respondent did not have the jurisdiction to issue the reassessment notice under Section 148 of the Income-tax Act, 1961, as the information relied upon did not constitute valid grounds for reopening the assessment. The court found that the respondent's action was based on suspicion and guesswork, which is not permissible under the law. Consequently, the writ petition was allowed, and a writ of prohibition was issued restraining the respondent from taking further proceedings pursuant to the notice dated 24th November, 1965. The petitioner was awarded costs, and the petition was allowed.