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TMI Blog1998 (11) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment Bank of India referable to gross taxable income of Rs. 1,81,23,723 before deduction under section 32AB. Likewise, for the previous year relevant to the assessment year 1988-89, the assessee had deposited a sum of Rs. 25,44,305 but claimed deduction under section 32AB only at Rs. 22,53,421 which was restricted to 20 per cent. of the profits of the business. For both the relevant years, deduction was allowed By the impugned notices under section 148 read with section 147, the assessee was required to furnish returns for the two assessment years. Section 147 which empowers the Assessing Officer to assess or reassess the income which has escaped assessment, is required under section 148 to issue notice to the assessee requiring him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dis and accordingly its activities fall under item (2) of the Eleventh Schedule of the Income-tax Act and, therefore, the activities do not come under 'eligible business' to which the provisions of section 32AB of the Act apply. Since the claim in respect of the amount deposited by the assessee with the Industrial Development Bank of India has been allowed to the assessee under the provisions of section 32B of the Income-tax Act, the assessment has resulted in under assessment to the extent the claim of the assessee has been allowed. Issue notice under section 148 of the Income-tax Act for default under section 147 of the Act in respect of the above assessment year." Notices were issued on August 7, 1991. It is urged by learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n succinctly stated by the apex court in Barium Chemicals Ltd. v. Company Law Board [1966] 36 Comp Cas 639 ; AIR 1967 SC 295. The court did not approve the unbriddled and unguided operation of the freedom from judicial scrutiny of acts which are founded on formation of subjective satisfaction of the authority empowered to take such action. Shelat J., in his opinion stated : "The words 'reason to believe' or 'in the opinion of' do not always lead to the construction that the process of entertaining 'reason to believe' or 'the opinion' is an altogether subjective process not lending itself even to a limited scrutiny by the court that such 'a reason to believe' or 'opinion' was not formed on relevant facts or within the limits or . . . restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exists, the action might be exposed to interference unless the existence of the circumstances is made out ........ We have to see whether the Chairman in his affidavit has shown the existence of circumstances leading to such tentative conclusions. If he has, his action cannot be questioned because the inference is to be drawn subjectively and even if this court would not have drawn a similar inference that fact would be irrelevant. But if the circumstances pointed out are such that no inference of the kind stated in section 237(b) can at all be drawn, the action would be ultra vires the Act and void." The principle equally appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact on which the Assessing Officer has founded his belief in this case is that the assessee is a trader in bidis and accordingly, its activities fall under item (2) of Schedule XI of the Income-tax Act and, therefore, the activities do not come under "eligible business" to which the provisions of section 32AB of the Act apply. The "eligible business" which has been defined under section 32AB at the relevant time reads as under : "32AB. (2) For the purposes of this section,--- (i) 'eligible business or profession' shall mean business or profession, other than--- (a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law, and as an Assessing Officer entrusted with implementation of the Act, the presumption is that he is aware about the provision at least for the breach of which he is seeking to initiate action under section 147, on the plain reading of section 32AB can hold a belief that a trader simpliciter is not carrying on eligible business. We are of the opinion that the impugned notice has been issued on mere pretext without having any ground for holding belief that income has escaped assessment without application of mind to the provision of law of which violation is assumed. Formation of subjective belief in such a case cannot be sustained. The conclusion is irresistible that action under section 147 has been initiated de hors the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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