1971 (2) TMI 32 - HC - Income Tax

Reassessment - Reference to HC point that ITO had no reason to believe before issuing notice was not raised before Tribunal such point cannot be raised before HC reassessment was valid

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 34 of the Income-tax Act, 1922.
2. Jurisdiction of the Income-tax Officer to reopen the assessment.
3. Compliance with the pre-conditions of section 34(1)(a) of the Act.
4. Adequacy of the grounds for the Income-tax Officer's belief that income was under-assessed.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue was whether the reassessment proceedings against the applicant-company for the assessment year 1945-46 were validly initiated. The Tribunal held that the reassessment proceedings were validly initiated based on the belief that the assessee had failed to disclose fully and truly all material facts necessary for its assessment, leading to under-assessment of income.

2. Jurisdiction of the Income-tax Officer:
The assessee contended that the Income-tax Officer lacked jurisdiction to reopen the assessment. However, the Tribunal found that the Income-tax Officer had reason to believe that the income had been under-assessed due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. This belief was based on the misleading statement made by the assessee's representative during the original assessment proceedings that sugar-cane was purchased from neighboring cultivators at a rate of Rs. 29-8-0 per ton, which was later admitted to be untrue.

3. Compliance with Pre-conditions of Section 34(1)(a):
The court emphasized that for an assessment to be reopened under section 34(1)(a), two conditions must be satisfied: (i) the Income-tax Officer must have reason to believe that income chargeable to tax has been under-assessed, and (ii) such under-assessment must have occurred due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that these conditions were met as the Income-tax Officer had reason to believe that the assessee had made a misleading statement regarding the purchase of sugar-cane, which affected the assessment.

4. Adequacy of Grounds for the Income-tax Officer's Belief:
The court held that the sufficiency of the grounds for the Income-tax Officer's belief is not a justiciable issue. As long as there are reasonable grounds for the belief, the court cannot investigate their adequacy. The belief must be held in good faith and have a rational connection to the formation of the belief. The court found that the Income-tax Officer had reasonable grounds to believe that the income was under-assessed due to the failure of the assessee to disclose material facts.

Conclusion:
The court answered the question in the affirmative, holding that the reassessment proceedings were validly initiated. The assessee was ordered to pay the costs of the reference. The court also expressed concern over the significant delay in the proceedings and urged the President of the Tribunal to ensure such delays are avoided in the future.