1971 (1) TMI 9 - SC - Income Tax

Income From Undisclosed Sources - income tax officer only had a vague feeling that there might be bogus transactions - notice issued under s. 148 is invalid

Summary

Issues:
Validity of notice under section 148 of the Income-tax Act, 1961

Analysis:
The Supreme Court heard an appeal by an assessee against the judgment of the High Court of Patna. The assessee, a partnership firm with construction contracts under Railways and Government, challenged the validity of a notice issued by the Income-tax Officer under section 148 of the Income-tax Act, 1961. The notice was issued for the assessment year 1960-61, alleging that income had escaped assessment. The Court focused on whether the notice complied with the requirements of section 151(2) of the Act. The notice was issued after four years but before eight years of the original assessment, as per the statutory provisions.

The Court examined the provisions of sections 148, 151(2), and 139(2) of the Income-tax Act, 1961. Section 148 mandates that the Income-tax Officer must serve a notice on the assessee before making any assessment, reassessment, or recomputation under section 147. Additionally, the Officer must record reasons before issuing any notice under section 148. Section 151(2) sets a time limit for issuing notices under section 148 and requires the Commissioner's satisfaction for the issuance of such notices.

The Court scrutinized the report submitted by the Income-tax Officer to the Commissioner and found it vague and lacking specific reasons for initiating proceedings under section 147. The report mentioned alleged name-lenders and bogus transactions without concrete evidence. The Court emphasized that the Officer must have prima facie grounds before issuing a notice under section 148. It concluded that the Officer did not have sufficient material to satisfy the requirements of section 147, rendering the notice invalid.

The Court criticized the Commissioner for mechanically approving the notice without proper assessment of the case. Both the Income-tax Officer and the Commissioner were reprimanded for not adhering to the safeguards provided in sections 147 and 151 of the Act. The Court held that the notice was invalid and quashed it, ruling in favor of the appellant. The Court directed the respondent to bear the costs of the appeal.