1971 (2) TMI 15 - HC - Income Tax

Reopening of assessment - one ITO dealt with registration of firm and deciding that wife was benamidar for assessee - another ITO reopening the assessment of assessee - validity of notice for reopening of assessment

Issues Involved:

1. Whether the Income-tax Officer (respondent No. 1) had a genuine belief that the petitioner's income for the assessment year 1961-62 had escaped assessment.
2. Whether there was any material before the respondent No. 1 to induce such belief.
3. Whether the material, if any, could reasonably lead to such belief.
4. Whether the finding of the Income-tax Officer, "J" Ward, District III(2), Calcutta, in the proceeding under section 26A of the old Act was valid and within jurisdiction.
5. Whether the respondent No. 1 disclosed the material leading to his belief in the affidavit filed in opposition to the petition.

Detailed Analysis:

1. Genuine Belief of Income Escaping Assessment:

The petitioner challenged the notice dated 28th March, 1970, issued under section 148 of the Income-tax Act, 1961, arguing that the Income-tax Officer (respondent No. 1) did not genuinely believe that the income for the assessment year 1961-62 had escaped assessment. The court examined whether the Income-tax Officer had a bona fide belief. It was noted that the respondent No. 1's belief seemed to be based on the information provided by the Income-tax Officer, "J" Ward, District III(2), regarding the benami transactions involving the petitioner's wife. However, the court found that respondent No. 1 did not independently consider or apply his mind to any facts to form such a belief. The court concluded that the belief was not genuinely held by respondent No. 1.

2. Material Inducing Belief:

The petitioner argued that respondent No. 1 had no material before him to induce the belief that the income had escaped assessment. The court reviewed the affidavit-in-opposition and found that while the proceedings and findings under section 26A of the old Act were mentioned, no specific particulars of the material were provided. The court noted that the records of the proceedings under section 26A did not clearly lead respondent No. 1 to the belief necessary for issuing the notice under section 148. The court concluded that there was no sufficient material before respondent No. 1 to induce such belief.

3. Reasonableness of the Belief:

Assuming that some material was present, the petitioner contended that such material could not reasonably lead to the belief that income had escaped assessment. The court referred to the principles laid down by the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer and Narayanappa v. Commissioner of Income-tax. It was held that the belief must have a rational connection to the formation of the belief and not be based on extraneous or irrelevant factors. The court found that the information provided by the Income-tax Officer, "J" Ward, District III(2), was not sufficient to reasonably lead to the belief that the income had escaped assessment.

4. Validity of the Finding under Section 26A:

The petitioner argued that the finding of the Income-tax Officer, "J" Ward, District III(2), regarding the benami transaction was not arrived at on any issue involved in the proceedings under section 26A and was beyond jurisdiction. The court noted that even if the finding was beyond jurisdiction, it could still be considered as information. However, the court found that the respondent No. 1 did not independently verify or consider this information to form a belief. Therefore, the court did not delve deeply into the validity of the finding under section 26A but focused on the lack of independent consideration by respondent No. 1.

5. Disclosure of Material in Affidavit:

The petitioner contended that respondent No. 1 did not disclose the material leading to his belief in the affidavit filed in opposition to the petition. The court reviewed the affidavit and found that it did not provide specific particulars of the material. The court concluded that the conditions precedent for issuing the notice under section 148 were not fulfilled as the material leading to the belief was not adequately disclosed.

Conclusion:

The court held that respondent No. 1 did not genuinely believe that the income had escaped assessment, had no sufficient material to induce such belief, and did not reasonably form such belief. The court struck down the notice dated 28th March, 1970, and the proceedings initiated by it. However, the court clarified that respondent No. 1 could initiate reassessment proceedings on proper materials as per section 147 of the new Act, and the petitioner would have all legal rights and remedies available. The rule was made absolute, and no order for costs was made. A stay of operation of the order was granted for six weeks.

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