2004 (12) TMI 30 - HC - Income Tax

Income escaping assessment - reasonable belief - From the material and records which were before the Income-tax Officer, he had information that each of the petitioners had disclosed in their wealth-tax return to have received huge amount of gifts running into several lakhs of rupees which had not been disclosed by them in their income-tax returns. The genuineness of the gifts, the capacity of the donors, the necessity of making gifts by strangers vis-a-vis sections 69 and 69A of the Act do constitute relevant material for forming the reasonable belief that the income has escaped assessment to tax. There is no question of improving upon the reasons recorded by the Income-tax Officer by means of an affidavit. In the present case, we are of the considered opinion that the Income-tax Officer had material before him to form a reasonable belief that the income had escaped assessment

Issues Involved:
1. Validity of notices issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to initiate reassessment proceedings.
3. Relevance and sufficiency of material for forming the belief of income escapement.
4. Maintainability of writ petitions under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of Notices Issued under Section 148 of the Income-tax Act, 1961:
The petitioners challenged the notices dated 15-3-2001 issued by the Income-tax Officer, Ward Bijnor, under Section 148 of the Income-tax Act, 1961, for the assessment years 1995-96 and 1996-97. They argued that the gifts in question had already been disclosed in their wealth tax returns and had been scrutinized and accepted by the Wealth-tax Officer, who is also the Income-tax Officer. Therefore, they contended that no income had escaped assessment, making the reassessment proceedings under Section 147/148 of the Act invalid and without jurisdiction.

2. Jurisdiction of the Income-tax Officer to Initiate Reassessment Proceedings:
The court examined whether the Income-tax Officer had "reason to believe" that any income chargeable to tax had escaped assessment, which is a prerequisite for initiating reassessment proceedings under Section 147 of the Act. The court emphasized that the belief must be reasonable, based on relevant and material reasons, and not arbitrary or irrational. The court cited several precedents, including Daulat Ram Rawatmal v. ITO and Calcutta Discount Co. Ltd. v. ITO, to establish that the formation of the required opinion and belief by the Assessing Officer is a condition precedent for initiating reassessment proceedings.

3. Relevance and Sufficiency of Material for Forming the Belief of Income Escapement:
The court noted that the petitioners had not disclosed the amount of gifts received in their income-tax returns, and the assessments were made under Section 143(1)(a) of the Act, which does not involve detailed scrutiny. The court held that the scrutiny done by the Wealth-tax Officer in the proceedings under the Wealth-tax Act could not be used to claim full and true disclosure under the Income-tax Act. The court found that the Income-tax Officer had material before him to form a reasonable belief that the income had escaped assessment, considering the huge amounts of gifts disclosed in the wealth-tax returns but not in the income-tax returns. The court cited Vishnu Borewell v. ITO and Great Arts (P.) Ltd. v. ITO to support the principle that the belief must be based on relevant and material reasons.

4. Maintainability of Writ Petitions under Article 226 of the Constitution of India:
The court addressed the argument that the petitioners should have filed their returns in response to the notices under Section 148 and contested the matter before the Income-tax Officer. The court held that the writ petitions were maintainable under Article 226 of the Constitution, as the court has the power to scrutinize the reasons recorded by the Assessing Officer for initiating proceedings under Section 147/148 of the Act. The court cited several precedents, including GKN Driveshafts (India) Ltd. v. ITO and Foramer v. CIT, to establish that the writ jurisdiction can be exercised when the authorities seek to assume jurisdiction which they do not possess or act in an arbitrary manner.

Conclusion:
The court dismissed the petitions, holding that the Income-tax Officer had material before him to form a reasonable belief that the income had escaped assessment. The court found no merit in the petitions and assessed costs of Rs. 5,000 payable by each of the petitioners.

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