1973 (7) TMI 12 - HC - Income Tax

This appeal is by the revenue and it is directed against the judgment and order of quashing notices under section 148 of the Income-tax Act, 1961 - When the Income-tax Officer does not disclose the material on which he had formed his belief for reopening the assessment, whether reassessment notice would be valid

Summary

Issues:
1. Validity of notices under section 148 of the Income-tax Act, 1961 for the assessment year 1961-62.
2. Compliance with conditions precedent for reopening assessment.
3. Application of principles laid down by the Supreme Court in Sheo Nath Singh's case.

Analysis:

Issue 1:
The appeal was filed by the revenue challenging the judgment quashing notices under section 148 of the Income-tax Act, 1961 for the assessment year 1961-62. The respondent, a company, contended that the Income-tax Officer had no jurisdiction to reopen the assessment as there was no material to believe that income had escaped assessment. The court noted the respondent's argument that the notices were illegal, invalid, and inoperative due to lack of material to support the belief of income escaping assessment.

Issue 2:
The reasons recorded for reopening the assessment indicated inaccurate particulars given by the respondent regarding unsecured loans. The court observed that the belief formed by the Income-tax Officer lacked a rational connection to the formation of the belief as required by section 147(a) of the Income-tax Act, 1961. The court emphasized that the belief must be held in good faith and cannot be based on extraneous or irrelevant reasons. The court found that the conditions precedent for reopening the assessment had not been fulfilled due to the lack of material or facts supporting the belief.

Issue 3:
The revenue contended that the principles laid down by the Supreme Court in Sheo Nath Singh's case were not applicable to the present case. However, the court disagreed and held that the principles regarding the formation of belief for reopening assessment were relevant. The court cited the Supreme Court's observation that the court can examine whether the reasons for the belief have a rational connection to the formation of the belief. The court found that the trial judge did not err in applying the principles laid down by the Supreme Court in Sheo Nath Singh's case.

In conclusion, the High Court dismissed the appeal, upholding the judgment that quashed the notices under section 148 of the Income-tax Act, 1961 for the assessment year 1961-62. The court found that the conditions precedent for reopening the assessment had not been fulfilled, as there was no material or fact supporting the belief of income escaping assessment. The court emphasized the importance of forming the belief in good faith and based on relevant reasons as required by the law.