1971 (3) TMI 37 - HC - Income Tax

Reassessment notice - issued before the time limits but served after the time limits validity of notice notice is held as valid

Summary

Issues Involved:
1. Grounds for reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Proper service of notice under Section 148 of the Income-tax Act, 1961, within the prescribed time.

Issue-Wise Detailed Analysis:

1. Grounds for Reopening the Assessment under Section 147 of the Income-tax Act, 1961:
The petitioner challenged the reopening of the assessment for the year 1947-48, arguing that there were no valid grounds for such action. The reasons for reopening were scrutinized, revealing that the Income-tax Officer had noted several bank transactions and fixed deposits that were not disclosed initially. The firm had obtained large credits from banks against these deposits, which were not traceable to any genuine persons. The Income-tax Officer believed these amounts represented undisclosed income, justifying the reopening under Section 147(a). The court held that there were reasonable grounds for the Income-tax Officer to believe there was non-disclosure of primary facts affecting the assessment. The court emphasized that in a writ petition under Article 226, it is not the sufficiency but the existence of reasonable grounds that is scrutinized. The court cited relevant Supreme Court decisions to support this view and concluded that the reopening was justified, dismissing the petitioner's first contention.

2. Proper Service of Notice under Section 148 of the Income-tax Act, 1961, within the Prescribed Time:
The petitioner contended that the notice under Section 148 was not served properly within the prescribed period, which is a condition precedent for initiating proceedings. The court examined the service attempts made by the Income-tax Department, including personal service attempts and affixation of the notice at the business premises. The court reviewed the reports of the inspector who attempted the service and concluded that reasonable and diligent efforts were made to serve the notice. The court held that the cumulative effect of these attempts constituted proper service in compliance with Order 5, Rule 17 of the Code of Civil Procedure. The court also addressed the argument that the notice was ultimately received by registered post on April 3, 1964, but maintained that service must be within the prescribed time. The court distinguished this case from others where service was deemed improper and concluded that the service was valid. Additionally, the court noted that questions of limitation should generally be decided by the income-tax authorities and not in writ petitions unless undisputed facts clearly show improper service.

Conclusion:
Both contentions raised by the petitioner were dismissed. The court found that there were reasonable grounds for reopening the assessment and that the notice under Section 148 was properly served within the prescribed time. The application was dismissed, the rule nisi discharged, and any interim orders vacated. The court allowed a six-week stay of operation of the order, which would not prevent the respondent from proceeding with penalty actions.