1970 (2) TMI 49 - HC - Income Tax

Notice issued under section 148 of the Income-tax Act, 1961, for reassessment of the petitioner s income even if assessee s representation was accepted at original assessment, invocation of section 147(a) is justified if assessee s representation was found to be untrue

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to reopen the assessment.
3. Duty of the assessee to disclose material facts.
4. Subsequent information and its impact on reassessment proceedings.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice issued under Section 148 of the Income-tax Act, 1961, for reassessment of income for the assessment year 1960-61. The notice was served on the petitioner on March 26, 1969, indicating that the Income-tax Officer had reason to believe that the petitioner's income had escaped assessment. The petitioner contended that there was no material for such belief and requested the respondent to furnish the basis for this belief, which was not complied with, leading to the current application to quash the notice.

2. Jurisdiction of the Income-tax Officer to Reopen the Assessment:
The jurisdiction to reopen an assessment is governed by Sections 147, 148, and 153 of the Income-tax Act, 1961. The provisions allow the Income-tax Officer to reassess if he has reason to believe that income chargeable to tax has escaped assessment due to omission or failure by the assessee to disclose fully and truly all material facts. The affidavit-in-opposition stated that subsequent investigations revealed that the loans obtained by the petitioner on hundis were not genuine, and some lenders admitted to being mere name-lenders. This provided the basis for the Income-tax Officer's belief that income had escaped assessment.

3. Duty of the Assessee to Disclose Material Facts:
Dr. Pal, representing the assessee, argued that all necessary materials for determining the claim for deduction of interest on hundi loans were disclosed during the original assessment. This included the names and addresses of lenders, amounts of loans, interest paid, confirmation letters, and discharged hundis. The Supreme Court's decision in the Calcutta Discount Company's case was cited, emphasizing the assessee's duty to disclose fully and truly all material facts necessary for assessment. The court noted that mere production of account books does not amount to full disclosure unless specific entries and documents are highlighted to the assessing authority.

4. Subsequent Information and Its Impact on Reassessment Proceedings:
Mr. Sen, representing the respondents, argued that if the Income-tax Officer receives subsequent information indicating that the original disclosure was not true, he is entitled to issue a notice for reassessment. He cited the Supreme Court's decision in Income-tax Officer v. Bachu Lal Kapoor, where it was held that subsequent discovery of facts justifying a belief that income had escaped assessment allows the Income-tax Officer to reopen the assessment. The court also referred to the Andhra Pradesh High Court's decision in Anna Nagendram's case, which supported reassessment based on subsequent information revealing that initial disclosures were not genuine.

Conclusion:
The court concluded that the Income-tax Officer was justified in reopening the assessment based on subsequent information indicating that the hundi loans were not genuine. The original assessment had considered all disclosed materials, but subsequent admissions by lenders that they were mere name-lenders provided grounds for reassessment. The rule was discharged, and the application was dismissed with no order as to costs. The court emphasized that the recent trend in judicial decisions supports reassessment if subsequent information reveals that initial disclosures were false or incorrect, aligning with the provisions of Section 147(a) of the Income-tax Act, 1961.

Post-Judgment Clarification:
After the judgment, Dr. Pal was allowed to argue on the Supreme Court's decision in Bachu Lal Kapoor's case. He clarified that the facts in that case differed from the present case, as the notice was served within four years, and the issue of failure to disclose did not arise. The court maintained its judgment, emphasizing that subsequent information justifying a belief that income had escaped assessment due to false disclosures allows reassessment under Section 147(a).

The interim order was extended for six weeks.

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