1971 (5) TMI 26 - HC - Income Tax

Reopening of assessment original assessment was completed accepting the assessee s explanation - ITO has no power to compel the assessee to furnish the particulars or to ask him to show cause why the assessment should not be reopened - Income-tax Officer has a right to issue the notice. But, the Income-tax Officer, however, has no right to compel the assessee to act in compliance with the notice

Summary

Issues:
1. Validity of the notice issued by the Income-tax Officer to the petitioner regarding the reopening of assessment for the assessment year 1956-57 under section 147(a) of the Income-tax Act, 1961.
2. Authority of the Income-tax Officer to require the assessee to produce evidence before reopening the assessment.
3. Obligation of the Income-tax Officer to conduct an investigation before reopening an assessment.

Detailed Analysis:
1. The petitioner was assessed for the assessment year 1956-57 based on a voluntary return filed, stating the sale of wife's ornaments. Subsequently, a notice was issued by the Income-tax Officer asking for particulars of the persons to whom gold ornaments were sold and reasons why the assessment should not be reopened under section 147(a) of the Income-tax Act, 1961. The petitioner challenged the authority of the Income-tax Officer to issue such a notice. The Income-tax Officer claimed the need for the notice based on information revealing false evidence provided by the petitioner during the original assessment. The court analyzed the provisions of the Act and concluded that the Income-tax Officer can request information before reopening an assessment if there are reasons to believe income has escaped assessment. The court held that the notice was valid, but the assessee was not obligated to comply with it.

2. The petitioner's counsel argued that the Income-tax Officer cannot request evidence from the assessee before reopening an assessment, citing legal precedents. The court acknowledged that the assessment is final until reopened under specific conditions mentioned in the Act. However, it clarified that the Income-tax Officer has the discretion to conduct investigations before reopening an assessment to act reasonably. The court emphasized that while the officer can request evidence, the assessee is not obligated to provide it before a notice under section 148 is issued. The court held that the Income-tax Officer has the right to issue the notice but cannot compel the assessee to comply with it, leaving the decision to the assessee.

3. The court addressed the obligation of the Income-tax Officer to conduct an investigation before reopening an assessment. It noted that while there is no statutory obligation for the officer to investigate in all cases, the officer must act reasonably. The court disagreed with the position that the officer cannot conduct a preliminary inquiry, stating that investigations may be necessary for the officer to be reasonable. The court emphasized that the officer has the right and duty to investigate, which may involve requesting evidence from the assessee. However, the court clarified that the assessee cannot be compelled to produce evidence before a notice under section 148 is issued. The court concluded that the application challenging the notice must fail, dismissing it and discharging the rule nisi without costs.

In summary, the judgment upheld the validity of the notice issued by the Income-tax Officer for reopening the assessment, clarified the authority of the officer to request evidence from the assessee, and outlined the officer's discretion to conduct investigations before reopening an assessment, emphasizing the need to act reasonably throughout the process.