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1972 (12) TMI 28 - HC - Income TaxWhen all primary facts were placed before Income-tax Officer at original assessment, whether subsequent change of opinion by the Income-tax Officer permits action under section 34(1)(a) - whether Income-tax Officer getting subsequent information is relevant for action under section 34(1)(a) (1) Whether, on the facts and in the circumstances of the case, the assessee could validly raise an objection to the issue of notice under section 34(1)(a) ? (2) If the answer to question No. 1 is in the affirmative, whether the facts and the circumstances of the case justified the issue of notice under section 34(1)(a) ? - Q. (1) Not pressed on behalf of the revenue. Therefore, answered in the affirmative. Q. (2) In the negative.
Issues Involved:
1. Validity of the objection to the notice under section 34(1)(a). 2. Justification for the issuance of the notice under section 34(1)(a). Issue-wise Detailed Analysis: 1. Validity of the Objection to the Notice under Section 34(1)(a): The court examined whether the assessee could validly raise an objection to the notice issued under section 34(1)(a). It was noted that the Tribunal, in its order dated February 14, 1956, did not conclusively decide the validity of the notice under section 34(1)(a). The Tribunal left the matter open, indicating that it was only after all material facts were on record that it could be determined whether the case fell under section 34(1)(a) or section 34(1)(b). The passage from the Tribunal's order emphasized that the contention regarding the validity of the notice was neither accepted nor rejected, thus leaving the issue unresolved. Consequently, the court concluded that since the matter was left open, the assessee could not have approached the High Court on a reference against the Tribunal's conclusion. The Advocate-General, representing the revenue, conceded that the first question should be answered in the affirmative, allowing the court to focus on the second question. 2. Justification for the Issuance of the Notice under Section 34(1)(a): The court analyzed whether the facts and circumstances justified the issuance of the notice under section 34(1)(a). The provision mandates that the Income-tax Officer (ITO) must have "reason to believe" that due to the assessee's omission or failure to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. The Supreme Court's interpretation in several cases, including Calcutta Discount Co. Ltd. v. Income-tax Officer, S. Narayanappa v. Commissioner of Income-tax, and Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, was considered. These cases established that if the ITO had reasonable grounds to believe that there had been non-disclosure of material facts, it would suffice to issue a notice under section 34(1)(a). The court emphasized that the sufficiency of the grounds for belief is not justiciable, and the existence of the belief can be challenged only to a limited extent, such as whether the ITO held the belief in good faith. In the present case, the court noted that all primary facts were disclosed by the assessee at the time of the original assessment. The ITO had observed the transaction with suspicion but did not draw an adverse inference at that time. The assessee was not obligated to present a version contrary to its contention. The court concluded that the ITO could have reached a different conclusion in 1947 but chose not to. The subsequent change of opinion by the ITO, based on information received from the Income-tax Officer at Surendranagar, did not justify invoking section 34(1)(a). The court held that the reassessment should have been pursued under section 34(1)(b), but it was common ground that this was not possible. Therefore, the issuance of the notice under section 34(1)(a) was not justified. Conclusion: - Question 1: Answered in the affirmative, acknowledging that the objection to the notice could be validly raised. - Question 2: Answered in the negative, indicating that the facts and circumstances did not justify the issuance of the notice under section 34(1)(a). The Commissioner of Income-tax was directed to pay the costs of the reference to the assessee.
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