1971 (4) TMI 13 - HC - Income Tax

Income escaping assessment - Interest on bowworings were allowed but subsequently lender denied the loan - change or variation in the value of the borrowings - reopening of assessment - ITO is justified in invoking section 147 (a)

Issues Involved: Reopening of assessment under Section 148 of the Income-tax Act, 1961; Full and true disclosure of material facts; Jurisdiction of the Income-tax Officer; Issuance of a writ of prohibition.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The primary issue revolves around the reopening of the assessment for the year 1962-63 under Section 148 of the Income-tax Act, 1961. The petitioner had originally disclosed a borrowing of Rs. 50,000 from M/s. Gordhandas Mulchand and claimed interest payment on it. The Income-tax Officer (ITO) initially accepted this as a genuine transaction. However, upon later scrutiny of M/s. Gordhandas Mulchand's assessment, it was discovered that the claimed borrowing did not occur. The ITO, after recording his reasons and obtaining the Commissioner's sanction, issued a notice under Section 148, believing that there was an under-assessment due to the petitioner's failure to fully and truly disclose all material facts.

2. Full and True Disclosure of Material Facts:
Section 147(a) of the Income-tax Act requires the assessee to fully and truly disclose all material facts necessary for the assessment. The petitioner argued that all material facts were disclosed during the original assessment, and it was the duty of the ITO to make any incidental inquiries. The court highlighted that the material facts must be both full and true. The conjunction "and" in Section 147(a) implies that the disclosure must meet both criteria. The court noted that the ITO had reason to believe, based on new information, that the petitioner's original disclosure was neither full nor true, justifying the reopening under Section 147(a).

3. Jurisdiction of the Income-tax Officer:
The petitioner contended that the ITO lacked jurisdiction to issue the notice under Section 148 since the original assessment was based on full disclosure of primary facts. The court, however, found that the ITO acted within his jurisdiction. The ITO's belief, based on subsequent information that the original disclosure was false, provided sufficient grounds for reopening the assessment. The court emphasized that the ITO's subjective satisfaction, based on objective material, was reasonable and justified the issuance of the notice.

4. Issuance of a Writ of Prohibition:
The petitioner sought a writ of prohibition to restrain the ITO from proceeding with the reassessment. The court explained that a writ of prohibition is issued to prevent an inferior court or tribunal from acting beyond its jurisdiction. In this case, the court found that the ITO had ample material and acted within his statutory jurisdiction in issuing the notice. Therefore, the writ of prohibition could not be granted. The court reiterated that a writ of prohibition is a writ of right, issued only when a tribunal is about to act in excess of its jurisdiction, which was not the case here.

Conclusion:
The court dismissed the writ petitions, concluding that the ITO had sufficient grounds and jurisdiction to issue the notice under Section 148. The petitioner's failure to fully and truly disclose material facts justified the reopening of the assessment. The court also emphasized that the issuance of a writ of prohibition was not warranted in this instance, as the ITO acted within his legal bounds. The petitions were dismissed with costs.

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