1989 (2) TMI 98 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued u/s 148 of the Income-tax Act, 1961.
2. Requirement of disclosing reasons for belief of income escaping assessment.
3. Evaluation of material facts and valuation reports for reassessment.

Summary:

Validity of Notices Issued u/s 148 of the Income-tax Act, 1961:
The petitioners challenged the notices u/s 148 of the Income-tax Act, 1961, issued by the Income-tax Officer (ITO) on the grounds that they were ab initio void and without jurisdiction. The petitioners argued that the ITO had no reason to believe that income chargeable to tax had escaped assessment, as they had fully and truly disclosed all material facts necessary for assessment. The court held that the ITO must have reasons to believe that income chargeable to tax had escaped assessment due to the omission or failure of the assessee to disclose fully and truly all material facts. The court found that the ITO's belief was based on the report of the Departmental Valuer, which differed from the report of the approved valuer submitted by the petitioners. However, the court concluded that a mere difference in valuation reports does not justify the reopening of assessments.

Requirement of Disclosing Reasons for Belief of Income Escaping Assessment:
The respondents contended that there is no provision in law requiring the ITO to furnish reasons for issuing a notice u/s 148 to the petitioners. The court agreed, stating that reasons for reopening an assessment need not be disclosed to the assessee, especially when the material leading to such belief has been filed in court. Therefore, the court held that the notices were not invalid solely because the reasons for the belief were not disclosed to the petitioners.

Evaluation of Material Facts and Valuation Reports for Reassessment:
The court examined whether the petitioners had disclosed all material facts fully and truly. The petitioners had submitted valuation reports from an approved valuer along with their returns, which were accepted by the ITO. The court noted that the ITO could have verified the valuation by the Departmental Valuer at the time of assessment but failed to do so. The court emphasized that a subsequent opinion of a Departmental Valuer differing from that of the approved valuer cannot form the basis for reopening the assessment. The court cited several precedents supporting the view that once an assessee has placed all primary facts before the ITO, any subsequent change of opinion by another valuer does not justify reassessment.

Conclusion:
The court quashed the notices issued u/s 148 of the Income-tax Act, 1961, as the ITO did not have sufficient grounds for the formation of the belief that income had escaped assessment based on the material facts disclosed by the petitioners. The court held that the petitioners had fully and truly disclosed all material facts necessary for assessment, and the difference in valuation reports was not a valid reason for reopening the assessments. The petitions were allowed, and the parties were directed to bear their own costs.