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TMI Blog1986 (12) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... July 27, 1973, and July 30, 1973, for a total consideration of Rs. 8,00,998. In the assessment to capital gains tax for the assessment years 1973-74 and 1974-75, this value was not disclosed by the petitioners, but a lesser value had been returned. However, taking advantage of the Voluntary Disclosure Scheme, 1975, the petitioners disclosed Rs. 6,50,000 as the total consideration received and offered to be assessed to capital gains on that value. The assessments were accordingly reopened and completed on the basis of the disclosure made. Thereafter, on the basis of the voluntary disclosure made by the petitioners on August 24, 1978, the Wealth-tax Officer issued notice under section 17 of the Act on August 26, 1980, seeking to reopen the assessment for 1972-73 in each of the petitioner's cases. These notices are challenged in these petitions on several grounds. It is contended by Sri K. S. Ramabhadran, learned counsel for the petitioners, that the notice which is purported to be a notice under section 17(1)(a) of the Act, on the assumption that the petitioners had failed to return the true and correct value of the property in question for the assessment year 1972-73 is not sust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivasan that the question of limitation is a matter to be urged by the petitioner before the Assessing Officer in the assessment proceedings and this court has no jurisdiction to interfere under article 226 with the notice at this stage. He, therefore, submits that the writ petitions are liable to be dismissed. The points that arise for consideration are (i) Whether there was failure on the part of the petitioners in not disclosing the true and correct value of the property at No. 12, Miller Road, Bangalore, for the assessment year 1972-73 ? (ii) Whether the initiation of the proceedings under section 17 of the Wealth-tax Act for the assessment year 1972-73, by notice dated August 26, 1980, in each of the petitioner's cases, is valid in law ? and (iii) Whether this court has jurisdiction to interfere and quash the said notice in exercise of its powers under article 226 of the Constitution ? Learned counsel for the petitioners has relied upon the following decisions in support of his contentions : 1. Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), 2. S. Narayanappa v. CIT[1967] 63 ITR 219 (SC), 3. CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and 4. Sheo Nath Sin v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and whether notices had been issued within the limitation period should properly be raised in the assessment proceedings, the Supreme Court observed thus (at page 207): " It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under-assessment has resulted from non-disclosure, he shall have jurisdiction to start proceedings for reassessment within period of 8 years ; and where he has reason to believe that an underassessment has resulted from other causes, he shall have jurisdiction to start proceedings for reassessment within 4 years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under-assessment, and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer did not hold the belief that there had been such nondisclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again, the expression I reason to believe in section 34 of the Income-tax Act does not mean purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law. " In A. Raman and Co.'s case [1968] 67 ITR 11, the Supreme Court was dealing with the scope of section 147(b) in so far as it related to " information " which is a condition precedent to the exercise of the jurisdiction of the Income-tax Officer. Defining the jurisdiction of the High Court to issue writs in such cases, the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Revenue has, in support of his argument, that the High Court has no jurisdiction to interfere and quash the impugned notice, relied upon the following decisions: (1) Lalji Haridas v. ITO [1961] 43 ITR 387 (SC), (2) Lalji Haridas v. R. H. Bhatt [1965] 55 ITR 415 (SC), (3) CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and (4) CWT v. Chhatrshal Sinhji D. Zala [1982] 135 ITR 826 (Guj). (1) Taking the first decision, namely, Lalji Haridas v. ITO [1961] 43 ITR 387 (SC), cited by Sri Srinivasan, the question involved in that case was whether the action initiated under section 34(3) of the Indian Income-tax Act, 1922, was barred by limitation. The Supreme Court observed in the course of its order that the question as to limitation ought to be raised by the assessee before the Income-tax Officer. This observation of the Supreme Court is sought to be relied upon by learned counsel for the Revenue in opposing the issue of a writ in the present case. It was a case of proceedings taken to assess two persons as a result of an order of remand made by the Appellate Assistant Commissioner in appeal. The point that arose on the facts of that case was, who was the person, whether " A " or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court can, in exercise of its powers under article 226, ascertain whether the Income-tax Officer had in his possession any information to reopen the assessment. The Supreme Court also ruled that the jurisdiction of the court extends no further and that it was not open to the High Court exercising powers under article 226 to set aside or vacate the notice for reassessment on a reappraisal of the evidence. This decision, therefore, helps both the petitioners and the Department, but the principle laid down does help the assessee in this case so far as the enquiry by the High Court as to the existence of the condition precedent to the exercise of jurisdiction by the Income-tax Officer is concerned. (iv) Lastly, the decision of the Gujarat High Court in CWT v. Chhatrshal Sinhji D. Zala [1982] 135 ITR 826, proceeded entirely on different set of facts which warranted interference by the High Court. The assessing officer had, in that case, initiated action to reopen the assessment on the basis of the valuer's report produced by the assessee in subsequent assessment. The court upheld that this would constitute information for reopening the assessment for the earlier years under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis for reopening the assessment. The petitioners have also claimed exemption from wealth-tax in respect of the assessment to wealth-tax for the year 1972-73. In the light of their disclosure made under the Voluntary Disclosure Scheme, 1975, that there is immunity to assess the wealth for all the previous years relevant to the date of the declaration, is available to the petitioners under section 13 of the Voluntary Disclosure Scheme cannot be disputed. So far as invoking section 17(1)(b) of the Act is concerned, the Department admittedly came to know about the sales when the petitioners filed their declarations under the Voluntary Disclosure Scheme on August 24, 1978. On the strength of the voluntary disclosure made, the assessment for the year 1972-73 was sought to be reopened. This is clear from the reasons recorded by the Wealth-tax Officer in the order sheet dated August 25, 1980, in the assessment records. If that is so, the next question that arises for consideration is, whether the action to reopen the assessment is within time under section 17(1)(b) of the Act, and if so, whether this court can interfere and quash the said notice in exercise of its powers under article ..... X X X X Extracts X X X X X X X X Extracts X X X X
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