9911796707
TMI Blog1996 (3) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is situated at Naginimara in the District of Mon, Nagaland. The petitioner-company is an assessee under the Income-tax Act. Notice dated March 30/31, 1989 (annexure-5 to the writ petition), was issued by the first respondent under section 148 of the Act for the assessment year 1985-86. The Forest Utilisation Officer, Government of Nagaland, Dimapur, for short ("the FUO"), placed orders on the petitioner-company for the supply of broad gauge and meter gauge railway sleepers of specified quality and size to be supplied from time to time as per despatch orders/instructions to be issued by the Forest Utilisation Officer. The sleepers were for use by the Indian Railways. As per the arrangement, the petitioner used to receive advance payment from time to time in respect of supply of sleepers. Such advance payments were made against such advance bills and the same were adjusted against such supply. In the assessment year 1985-86, the petitioner-company filed a return under the Act on September 4, 1985, showing a net loss of Rs. 9,29,500. Along with the said return, the company also filed its audited profit and loss account and the balance-sheet and all other relevant details. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... railway sleepers for the accounting year ending June 30, 1984, and sale of railway sleepers during the accounting year ending June 30, 1985. By the said notice, the petitioner was also asked to show cause as to why the assessment for the profit from the sale of sleepers should not be added to the return of income submitted for the assessment year 1985-86. The contention of the petitioner-company is that the aforesaid letter dated February 8, 1989, was wholly misconceived, untenable and uncalled for inasmuch as all the relevant facts were made available on record and along with the return of income filed for the accounting year ending June 30, 1984, all the relevant and primary facts had been disclosed by the petitioner-company before the assessing authority. Therefore, there was no reason or basis for issuance of the aforesaid annexure-3 letter dated February 8, 1989, and issuance of the said letter would show that the respondents were embarking on a fishing and roving enquiry and to reexamine the facts already on record which was absolutely uncalled for and contrary to the provisions of law. Effort was made only to change opinion on the facts which were already available. The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the authority in pursuance of a notice under sections 142(1) and 143(2) of the Act. The entire action of the respondents in issuing annexure-5 letter was misconceived and on the basis of wrong interpretation of the provisions of law and, therefore, annexure-5 was not tenable and is liable to be quashed. Hence, the present petition. Respondents Nos. 1, 2 and 3 filed an affidavit-in-opposition. The petitioner also filed an additional affidavit. In the affidavit-in-opposition the said respondents have stated that the Assistant Director of Income-tax (Investigation), North-Eastern Region, was the Assistant Commissioner of Income-tax, Special Circle-II, Guwahati, at the material time holding concurrent jurisdiction with the Deputy Commissioner of Income-tax (Assessment), Special Range-II, Guwahati, in the matter of assessment of the petitioner-company for the assessment years 1985-86 and 1986-87 as per the Notification No. 2(c) of 1988-89 and, therefore, he was fully acquainted with the facts and circumstances of the case. The respondents have denied the statements made by the petitionercompany in its petition that the company disclosed fully and truly all the material and primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 being absent in the instant case inasmuch as there was no material on record to show that the authority had reason to believe that certain income escaped assessment, issuance of annexure-5 notice was illegal, void and without jurisdiction and/or without authority of law and accordingly, liable to be set aside and quashed. Mr. Bhattacharjee further submitted that it was evident from the records that notice was issued for collateral purposes. It was nothing but a roving and fishing investigation which was not permissible under the law. Relevant materials necessary for the purpose of making the assessment were placed before the authority at the time of assessment. No new information or material came to the knowledge of the first respondent for the purpose of taking the action. There was no omission on the part of the petitioner-company to disclose fully and truly all the materials necessary for the purpose of assessment. Besides, the first respondent having finalised the assessment for 1985-86 after completing all investigation, the impugned notice was bad in law. The next point urged by Mr. Bhattacharjee was that the second respondent not being a competent authority to issue the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Income-tax Officer may, before the end of the relevant assessment year, issue a notice on him requiring him to furnish within 30 days from the date of service of the notice a return of his income in the prescribed form and verified in the prescribed manner and also supplying the particulars that may be prescribed. Under section 142 of the Act for the purpose of making an assessment under the Act, the Income-tax Officer may serve on any person who made a return under section 139 or to whom notices were issued under sub-section (2) of section 139, a notice requiring him to produce or cause to be produced the books of account and/or documents as the Income-tax Officer may require or to furnish all writing and verified in the prescribed manner information in such form and on such points or matters as the Income-tax Officer may deem fit. Under section 143 of the Act, where a return has been filed under section 139, the Income-tax Officer may make an assessment with necessary adjustment with reference to the past record, accounts and documents filed with the record. Under section 144 of the Act if any person fails to make a return required by any notice given under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding are reasonable belief reached by the Income-tax Officer under clause (a) or clause (b) of section 147 or recording the reasons of the Income-tax Officer under section 148(2). The conditions are cumulative in nature and these conditions have been introduced only to safeguard the public interest. The requirements of the section are mandatory in nature. Learned counsel for the parties had drawn my attention to various decisions in connection with the present case. In Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court held that to confer jurisdiction under section 34 of the Act (Act XI of 1922) to issue notice in respect of assessment, two conditions had to be satisfied. First, the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been underassessed. Secondly, he must have also reason to believe that such "underassessment" had occurred by reason of either (1) omission or failure on the part of an assessee to make a return of his income under section 22, or (2) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open for the court's investigation. In other words, all that was necessary to give this special jurisdiction was that the Income-tax Officer had, when he assumed jurisdiction, some prima facie grounds for thinking that there had been some non-disclosure of material facts. It was the duty of the assessee, who wanted the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure. In Madhya Pradesh Industries Ltd. v. ITO [1965] 57 ITR 637, the apex court following the decision of Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC) held thus (page 642) : "Jurisdiction of the Income-tax Officer obviously arises when he has reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment, income of the assessee has escaped assessment, or has been underassessed, and when the party claiming relief challenges on oath the existence of the conditions, which confer jurisdiction, and sets out facts which may, unless disproved, support his case, an order dismissing his petition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. In Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1, the Supreme Court while dealing with section 147(a) observed that the expression "reason to believe" was stronger than the expression "is satisfied". The belief entertained must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which were relevant and material. The court, of course, could not investigate into the adequacy or sufficiency of the reasons which had weighed with the Income-tax Officer in coming to the belief, but the court could certainly examine whether the reasons were relevant and had a bearing on the matters in regard to which he was required to entertain the belief before he could issue notice under section 147(a). If there was no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other details may be there. It is not obligatory on the part of the assessee to make further disclosure. The Income-tax Officer also has no right to insist on such information beyond the information necessary for making the assessment and it is only withholding of necessary and material information by the assessee that confers jurisdiction on the Income-tax Officer to initiate a proceeding under section 147 and the Income-tax Officer must have reason to believe that the assessee failed to disclose fully and truly those facts which are necessary for the purpose of making assessment. The reason to believe, however, must not be fanciful or arbitrary. It must be reasonable and based on material facts. From the decisions cited above, it is also clear that formation of belief must have a rational connection and direct nexus between the materials coming to the notice of the Income-tax Officer and formation of belief that there had been an escapement of income. Besides, this belief must not be arbitrary and capricious. In the case in hand, the return of income was filed by the petitioner-company for the assessment year 1985-86 corresponding to the accounting year ending June, 1984. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appoint Income-tax Officers of Class-I service as it thinks fit. In the present case, the notice was issued not by the Income-tax Officer but by the Deputy Commissioner. I have perused the annexure-3 letter dated February 8, 1989, issued by the Assistant Commissioner of Income-tax, Special Circle-II, Guwahati, and also annexure-5 notice issued by the Deputy Commissioner of Income-tax (Assessment), Special Range. The petitioner has challenged the authority of the persons who issued. annexure-3 and annexure-5. As stated above, under the law, a notice can be issued under section 148 of the Income-tax Act before making assessment, reassessment or recomputation under section 147 by the Income-tax Officer. Section 147 also empowers the Income-tax Officer to assess, reassess or recompute any income by the Income-tax Officer on fulfilment of the conditions mentioned in the said section. Therefore, issuance of a notice under section 148 and initiation of a proceeding under section 147 must be by an Income-tax Officer. The income-tax authorities can be appointed under the provisions of section 117 of the Act and the Income-tax Officer has been clearly defined under section 2(25). Mr. Jos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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