1970 (1) TMI 22 - HC - Income Tax

Reopening of assessment - validity - department would be justified in making the reassessment on the basis of the decision of the Supreme Court - it is not necessary for the ITO to disclose the reason for issuing the notice if the assessee challenges the existence or validity of the reason in a proceeding under Article 226 of Constitution of India

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to issue the notice.
3. Obligation of the assessee to disclose material facts.
4. Requirement for the Income-tax Officer to disclose reasons for issuing the notice.
5. Vires of section 297(2), clauses (a) and (b) of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income-tax Act, 1961
The petitioner, an Indian company dealing in shares, challenged the notice issued under section 148 of the Income-tax Act, 1961, proposing to reassess its income for the assessment year 1959-60. The notice was issued on the grounds that income had escaped assessment within the meaning of section 147 of the Act. The court found that the Income-tax Officer had initially attempted to rectify the assessment under section 154 but failed. Subsequently, the officer issued the notice under section 148, which was contested by the petitioner.

2. Jurisdiction of the Income-tax Officer to Issue the Notice
The court examined whether the Income-tax Officer had the jurisdiction to issue the notice under section 148. It was established that the foundation of the Income-tax Officer's jurisdiction to reassess under section 147 is the issue and service of a valid notice. The court emphasized that if the notice is not in conformity with the provisions of section 147, the Income-tax Officer would lack jurisdiction to start reassessment proceedings. The court concluded that the Income-tax Officer had no jurisdiction to issue the impugned notice as all primary facts necessary for the assessment had already been disclosed by the petitioner.

3. Obligation of the Assessee to Disclose Material Facts
The court discussed the extent of the obligation on the assessee to disclose material facts necessary for assessment. It was noted that the assessee had a duty to disclose all primary facts, including particular entries in account books and other evidence. The court found that the petitioner had disclosed all necessary primary facts in its letter dated 8th November 1962, in response to the Income-tax Officer's queries. Therefore, there was no failure or omission on the part of the petitioner to disclose material facts, and section 147(a) could not be applied.

4. Requirement for the Income-tax Officer to Disclose Reasons for Issuing the Notice
The court addressed the issue of whether the Income-tax Officer was required to disclose the reasons for issuing the notice under section 148. It was held that while it is not mandatory for the Income-tax Officer to disclose the reasons at the time of issuing the notice, such reasons should be disclosed in the affidavit in opposition if the validity of the notice is challenged in a proceeding under article 226. In this case, the reasons were not disclosed, and the court found this to be a procedural deficiency.

5. Vires of Section 297(2), Clauses (a) and (b) of the Income-tax Act, 1961
The petitioner also raised the issue of the vires of section 297(2), clauses (a) and (b) of the Income-tax Act, 1961. However, the court did not find it necessary to address this contention, as the decision on the first ground regarding the validity of the impugned notice was sufficient to dispose of the application. Consequently, the court expressed no opinion on this matter.

Conclusion
The court ruled in favor of the petitioner, making the rule absolute and quashing the impugned notice and all proceedings taken thereunder. The court emphasized that the Income-tax Officer lacked jurisdiction to issue the notice under section 148, as all primary facts had been disclosed by the petitioner, and there was no failure or omission on its part. The court also highlighted procedural deficiencies in the Income-tax Officer's actions, including the failure to disclose reasons for issuing the notice when challenged.

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