1973 (2) TMI 32 - HC - Income Tax

Satisfaction of escapement of income - Recording of Reasons for Notice of Reassessment - A condition precedent of reopening assessment is the reasonable belief of the Income-tax Officer that the income had escaped assessment.

Summary

Issues Involved
1. Legality of reopening the assessment under section 147(a) of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to act under section 147(a).
3. Non-disclosure of income by the assessee.
4. Compliance with procedural requirements under section 148(2) and section 151.

Detailed Analysis

1. Legality of Reopening the Assessment under Section 147(a)
The primary issue revolves around whether the reopening of the assessment for the year 1955-56 under section 147(a) of the Income-tax Act, 1961, was legal, valid, and within jurisdiction. The Tribunal held that the reopening was invalid due to the absence of a reasonable belief by the Income-tax Officer that the income had escaped assessment due to the assessee's failure to disclose material facts. The Tribunal also noted that the proceedings were initiated solely based on the direction of the Commissioner of Income-tax.

2. Jurisdiction of the Income-tax Officer to Act under Section 147(a)
The Tribunal concluded that the Income-tax Officer lacked jurisdiction to reopen the assessment for 1955-56 under section 147(a). The Tribunal based its conclusion on the fact that the reasons recorded by the Income-tax Officer did not satisfy the requirements of section 147(a). Specifically, the Tribunal found that the Income-tax Officer did not have a reasonable belief that the income had escaped assessment due to the assessee's non-disclosure of material facts. The Tribunal emphasized that the only reason recorded was the direction of the Commissioner, which does not suffice to meet the statutory requirements.

3. Non-Disclosure of Income by the Assessee
The Tribunal's reasoning was scrutinized by the court, which found that the Tribunal had erred in holding that there was no non-disclosure of income by the assessee for the assessment year 1955-56. The court pointed out that the assessee had not included the sum of Rs. 36,000 in her return for 1955-56, despite the adjustment being made on August 31, 1954. The court noted that the original assessment for 1952-53 did not include this amount, and thus, the assessee was guilty of non-disclosure, leading to the escapement of income for 1955-56.

4. Compliance with Procedural Requirements under Section 148(2) and Section 151
The court found that the Income-tax Officer did not comply with the mandatory procedural requirements under section 148(2) and section 151. The Income-tax Officer failed to record his reasons for initiating proceedings under section 147(a) independently, instead relying solely on the direction of the Commissioner. The court emphasized that the recording of reasons is a condition precedent for the issuance of a notice under section 148, and failure to do so invalidates the proceedings. The court rejected the revenue's argument that the procedural defect did not affect the jurisdiction of the Income-tax Officer, stating that the statutory conditions must be satisfied to confer jurisdiction.

Conclusion
The court held that the reassessment proceedings under section 147(a) were invalid due to non-compliance with procedural requirements and lack of jurisdictional basis. The question referred to the court was answered in the affirmative, confirming that the reopening of the assessment for 1955-56 was illegal, invalid, and without jurisdiction. The revenue was ordered to pay the costs of the assessee, with counsel's fee set at Rs. 250.