2005 (8) TMI 38 - HC - Income Tax

Initiation of the proceedings under section 147 of the Act was without any material of escapement income for the assessment year 1995-96. Thus the entire proceeding is held to be illegal and is accordingly quashed. In the result the writ petition is allowed. The notice under section 148 of the Act for the assessment year 1995-96 and the consequential proceedings thereof are quashed

Summary

Issues Involved:
1. Quashing of the show cause notice dated July 26, 1999.
2. Quashing of the notice under section 148 of the Income-tax Act, dated December 24, 1998.
3. Examination of the sufficiency and relevance of the material for reopening the case under section 147 of the Income-tax Act.
4. Determination of the validity of the proceedings initiated under section 147 of the Income-tax Act.

Detailed Analysis:

1. Quashing of the show cause notice dated July 26, 1999:
The petitioner sought to quash the show cause notice dated July 26, 1999, issued by the respondent. This notice was related to the reopening of the assessment for the year 1995-96 under section 148 of the Income-tax Act. The court examined whether there was any material evidence of escaped income for the year under consideration that justified the reopening of the case.

2. Quashing of the notice under section 148 of the Income-tax Act, dated December 24, 1998:
The petitioner also sought to quash the notice under section 148 of the Income-tax Act, dated December 24, 1998, which was received on January 11, 1999. This notice aimed to reopen the assessment for the year 1995-96. The court scrutinized the reasons provided for issuing this notice and whether they were based on relevant material.

3. Examination of the sufficiency and relevance of the material for reopening the case under section 147 of the Income-tax Act:
The court evaluated whether the material used to justify the reopening of the case under section 147 of the Act was sufficient and relevant. It was argued that the defects found in the books of account for the assessment year 1996-97 could not be used to presume similar defects or escaped income for the year 1995-96. The court emphasized that the belief of escaped income must be based on specific material related to the year under consideration, not on presumptions or guesswork.

4. Determination of the validity of the proceedings initiated under section 147 of the Income-tax Act:
The court reiterated that under section 147 of the Act, the case can be reopened if there is "reason to believe" that income has escaped assessment. The court analyzed whether the reasons recorded for reopening the case were based on relevant material. It concluded that the material referred to was related to the assessment year 1996-97 and not the year 1995-96. The court found that the reopening was based on presumption and guesswork rather than concrete material evidence of escaped income for the year 1995-96.

The court cited several precedents to support its conclusion, including the principle that the belief of escaped income must be reasonable, based on relevant material, and not arbitrary or irrational. The court also noted that in writ jurisdiction, it could examine the relevancy of the material but not its sufficiency.

Conclusion:
The court concluded that there was no material evidence of escaped income for the assessment year 1995-96, and the reopening of the case was based on presumption and guesswork. Consequently, the initiation of proceedings under section 147 of the Act was deemed illegal, and the entire proceeding was quashed. The writ petition was allowed, and the notices under section 148 for the assessment year 1995-96 were quashed. There was no order as to costs.