1971 (10) TMI 25 - HC - Income Tax

Petitioner-firm filed its return as required under section 139 of the Income-tax Act, 1961 - Along with the return of income, the balance-sheet was filed in which credit entries in the names of various firms - When the credit entries were accepted at original assessment after enquiry, whether the assessment could subsequently be reopened on information that the transactions were bogus - impugned notices having been issued more than four years after the expiry of the assessment years 1963-64 and 1964-65 were void and without jurisdiction and no proceedings on their basis can be taken. These petitions are consequently accepted with costs and the impugned notices are quashed

Summary

Issues:
1. Validity of the notice issued under section 148 of the Income-tax Act for reassessment.
2. Application of section 147(a) or section 147(b) for issuing the notice.
3. Disclosure of material facts by the petitioner-firm for assessment purposes.
4. Legal implications of changing opinion by the Income-tax Officer for reassessment.

Analysis:
1. The judgment addressed the validity of a notice issued under section 148 of the Income-tax Act for reassessment for the assessment year 1963-64. The Income-tax Officer issued the notice after discovering information related to cash credits in the petitioner-firm's balance sheet, alleging concealment of income. The petitioner challenged the notice on the grounds of limitation prescribed in section 149 of the Act.

2. The court analyzed the application of section 147(a) and section 147(b) to determine the timeliness of the notice. Section 147(a) allows reassessment within eight or sixteen years based on the amount of tax escaped, while section 147(b) sets a four-year limitation from the expiry of the assessment year. The court deliberated on whether the notices were issued within the prescribed time limits based on the applicable section.

3. The judgment emphasized the importance of the petitioner-firm's disclosure of material facts necessary for assessment. Referring to the Supreme Court's ruling in Calcutta Discount Company Ltd. v. Income-tax Officer, the court highlighted that the duty of disclosure extends to primary relevant facts essential for assessment. The petitioner-firm's compliance with the Income-tax Officer's requirements during the original assessment was crucial in determining the adequacy of disclosure.

4. The court discussed the legal implications of the Income-tax Officer changing his opinion based on subsequent information for reassessment under section 148. Citing the Supreme Court's decision in Commissioner of Income-tax v. Bhanji Lavji, the court stressed that when all primary facts are disclosed, reassessment cannot be initiated solely on a change of opinion. The court concluded that the impugned notices for reassessment were void and without jurisdiction as they were issued more than four years after the relevant assessment years.

In conclusion, the judgment upheld the petitioner's challenge, quashed the impugned notices, and deemed them void due to being issued beyond the prescribed time limits under section 147(b). The court's analysis focused on the necessity of full and truthful disclosure of material facts by the petitioner-firm for assessment purposes and the limitations on reassessment based on a change of opinion by the Income-tax Officer.