2000 (3) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued u/s 148 of the IT Act, 1961.
2. Validity of the notice issued u/s 142 of the IT Act, 1961.
3. Jurisdiction of the AO to initiate proceedings u/s 147 of the IT Act, 1961.

Summary:

1. Validity of the notice issued u/s 148 of the IT Act, 1961:
The petitioner challenged the notice dated 30th Oct., 1998/2nd Nov., 1998, issued u/s 148 of the IT Act, 1961, for the assessment year 1991-92, contending that no income had escaped assessment and that there was no omission or failure on the part of the company to disclose all material facts. The AO issued the notice based on an enquiry by an outside authority, alleging that payments made by the company to certain entities were not genuine and were merely accommodation entries. However, the Court found that the AO did not have specific information or material to show that the transactions were not genuine and had not arrived at a prima facie conclusion that the transactions were fictitious. Therefore, the AO did not have reason to believe that income had escaped assessment, and the notice issued u/s 148 was quashed.

2. Validity of the notice issued u/s 142 of the IT Act, 1961:
Following the issuance of the notice u/s 148, the AO issued a notice dated 3rd/4th Dec., 1998, u/s 142 of the IT Act, 1961, requiring the petitioner to furnish a return and produce relevant documents. Since the notice u/s 148 was found to be without jurisdiction, the subsequent notice u/s 142 was also invalidated.

3. Jurisdiction of the AO to initiate proceedings u/s 147 of the IT Act, 1961:
The Court examined whether the AO had jurisdiction to initiate proceedings u/s 147 of the IT Act, 1961, after the expiry of four years from the relevant assessment year. It was held that for the AO to have jurisdiction, two conditions must be satisfied: (1) the AO must have reason to believe that income chargeable to tax has escaped assessment, and (2) such escapement must be due to the failure of the assessee to disclose fully and truly all material facts. The Court found that the AO did not have specific material or information to form a belief that income had escaped assessment and that the transactions were not genuine. Therefore, the initiation of proceedings u/s 147 was without jurisdiction.

Conclusion:
The Court quashed the impugned notices issued u/s 148 and 142 of the IT Act, 1961, for the assessment year 1991-92, holding that the AO did not have the jurisdiction to initiate proceedings u/s 147 of the Act. The parties were directed to bear their own costs.