1971 (2) TMI 3 - HC - Income Tax

Notices under section 148 read with section 147(b) of the Income-tax Act, 1961 proposing to reopen the assessment - notices for recomputation of the depreciation allowance - validity of notice

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue notices under section 148 read with section 147(b) of the Income-tax Act, 1961.
2. Maintainability of the writ petition in the High Court.
3. Conditions precedent for issuing notices under section 148 read with section 147(b) of the Income-tax Act, 1961.
4. Validity of the information on which the Income-tax Officer based his belief that income had escaped assessment.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Issue Notices:
The petitioner challenged the jurisdiction of the Income-tax Officer to issue notices under section 148 read with section 147(b) of the Income-tax Act, 1961, proposing to reopen assessments for the years 1964-65 to 1968-69. The petitioner argued that the conditions precedent for issuing such notices were not fulfilled, as there was no material to show that the Income-tax Officer had reason to believe that the income for these years had escaped assessment.

2. Maintainability of the Writ Petition in the High Court:
A preliminary objection was raised by the respondents regarding the maintainability of the writ petition, arguing that the petitioner had an adequate and alternative remedy by way of an appeal against the order of assessment that may be made pursuant to the notice. However, the court referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, which established that the question of whether the Income-tax Officer had reasons to believe that under-assessment had occurred was a question of jurisdiction that could be investigated by the High Court under article 226 of the Constitution. Therefore, the preliminary objection was dismissed.

3. Conditions Precedent for Issuing Notices:
The court examined whether the two conditions precedent for issuing notices under section 148 read with section 147(b) were satisfied:
- The Income-tax Officer must have reason to believe that the income of the assessee had been under-assessed.
- Such under-assessment must have occurred due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The court noted that these conditions were essential for the Income-tax Officer to have jurisdiction to issue a notice for assessment or reassessment beyond the period of four years but within eight years from the end of the relevant year.

4. Validity of the Information:
The court scrutinized the reasons recorded by the Income-tax Officer for issuing the impugned notices. The reasons stated that information came into the possession of the Income-tax Officer indicating that the petitioner was entitled to claim depreciation at 7% on the blade-making machinery, and this information was based on the assessment of the sister concern of the petitioner, where depreciation was allowed at 7%.

The petitioner contended that there were no prima facie materials in support of the information that could lead the Income-tax Officer to believe that the income had escaped assessment. Additionally, the petitioner argued that the information regarding the sister concern's depreciation rate was not connected to the information that led to the belief of escaped assessment.

The court held that the information must have a real relation with the income of the petitioner and that information based on facts entirely unconnected with the petitioner's income could not be considered as valid information under section 147(b). The court also emphasized that information as to the state of the law must be such that it could not have been discovered with due diligence at the time of the original assessment.

The court concluded that the information regarding the sister concern's depreciation rate did not constitute valid information and that the Income-tax Officer's belief was merely a change of opinion, not based on reasonable belief. Consequently, the court held that the impugned notices were issued without jurisdiction.

Conclusion:
The court quashed the impugned notices and made the rule absolute, issuing a writ in the nature of mandamus and certiorari accordingly. There was no order as to costs.

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