Calcutta H.C : This appeal is directed against an order dt. 18th Dec., 1992, passed by a learned single Judge of this Court whereby the learned single Judge allowed an application under Art. 226 of the Constitution of India and, accordingly, quashed notices under s. 148

High Court Of Calcutta

Income Tax Officer & Ors. vs. Shree Bajrang Commercial Company (P) Ltd.

Sections 147(a), 148, Art 226

Asst. Year 1972-73, 1973-74

Ashok Kumar Mathur, C.J. & Subhro Kamal Mukherjee, J.

Appeal from Original Order No. 226 of 1997

28th January, 2002

Counsel Appeared

Ram Chandra Prasad, for the Appellants : Dr. Debi Prasad Pal & Amar Nath Sen, for the Respondent

JUDGMENT

SUBHRO KAMAL MUKHERJEE, J. :

This appeal is directed against an order dt. 18th Dec., 1992, passed by a learned single Judge of this Court whereby the learned single Judge allowed an application under Art. 226 of the Constitution of India and, accordingly, quashed notices under s. 148 of the IT Act, 1961 (the said Act in short).

2. The writ petitioner-company was an assessee under the said Act and, admittedly, they have submitted their returns of income for the asst. yrs. 1972-73 and 1973-74. Although orders of assessment for the said years were passed by the ITO concerned, subsequently the ITO issued notices under s. 148 of the said Act proposing to reopen the assessments in respect of aforesaid assessment years. The present application under Art. 226 of the Constitution of India was moved before this Court challenging the said notices under s. 148 of the said Act contending, inter alia, that the ITO was really harassing the assessee and there was no bona fide reason to reopen the assessments. The learned single Judge by the order impugned quashed the aforesaid notices holding that the reasons for reopening the assessments did not provide a live-link between the materials and the belief. Being aggrieved the Revenue has come up with this appeal.

3. In course of hearing before the learned single Judge the records of the case were produced and the reasons for reopening of the assessment under s. 147(a) of the said Act were brought to the notice of the learned single Judge. The reasons were as under : “Reasons for reopening assessment under s. 147(a) asst. yrs. 1973-74 M/s Shree Bajrang Commercial Company (P) Ltd. Information has been received that Sri Manick Chand Jain, alias Manick Chand Baid son of Chhotilal Baid has made a deposition under s. 131 of the IT Act before IAC Range-XIII on 30th July, 1976, that he was a name-lender and that he was carrying on business in the name of Gulab Chand Jainarayan, Mahindra Steel Corporation and Aruna Engineering Stores. It is noticed from the examination of the assessment record that during previous year ended 30th June, 1972, relevant to the asst. yr. 1973-74 the assessee had account with Aruna Engineering Stores and Gulab Chand Jainarayan which showed total credit of Rs. 45,000 and Rs. 47,000 respectively. I have, therefore, reason to believe that by reason of the omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for this year that income chargeable to tax has escaped assessment. It is, therefore, proposed to reopen the assessment under s. 147 (a) of the IT Act for the asst. yr. 1973-74.”

4. The learned Judge himself recorded that although several legal contentions have been raised by the assessee before him, but the learned Judge was unable to accept any of the said legal propositions. Nevertheless, the learned Judge quashed the said notices with the following observations : “The recorded reasons have been set out earlier in the judgment. It will be seen that in the first part it has been recorded that Manick Chand Jain has deposed that he was a name-lender. Thereafter, it has been recorded that Manick Chand was carrying on business in the name of Gulab Chand Jainarayan, Mahindra Steel Corporation and Aruna Engineering Stores. There is no categorical statement that all the business carried on in the names of Gulab Chand Jainarayan, Manindra Steel Corporation and Aruna Engineering Stores were bogus and fictitious. “The Supreme Court on very similar reasons recorded in the case of ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) : TC 51R.598 held that such reasons did not provide a live-link between the material and the belief. In view of this pronouncement of the Supreme Court it must be held that the strength of the reasons recorded in the instant case, the ITO could not proceed to reopen the assessment….In view of the clear pronouncement of the Supreme Court on very similar facts in the case of Lakhmani Mewal Das (supra), it must be held that the reason recorded by the ITO could not be the basis for formation of the requisite belief that the assessee had concealed material particulars at the time of the assessment proceeding.” In the case of Calcutta Discount Co. Ltd. vs. ITO & Anr. (1961) 41 ITR 191 (SC) : TC 51R.779 while considering the scope of s. 147(a) of the said Act, the Supreme Court observed that to confer jurisdiction under s. 147(a) two conditions were to be satisfied. Firstly, the ITO must have reason to believe that income, profits or gains chargeable to income-tax had escaped assessment. Secondly, he must, also have reason to believe that such escapement had occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under s. 139, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions were conditions precedent to be satisfied before the ITO could assume jurisdiction to issue a notice under s. 148 r/w s. 147(a) of the said Act.

The Supreme Court of India in the case of ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) : TC 51R.598 observed that the reasons for the formation of the belief contemplated by s. 147(a) of the said Act for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection stipulated that there must be a direct nexus or live-link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It was no doubt true that the Court could not go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening the assessment. At the same time it was not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The Supreme Court of India in the case of Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456 (SC) : TC 51R.825 observed that an ITO acquired jurisdiction to reopen an assessment under s. 147(a) only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he had reasons, which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax had escaped assessment. He might start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed came into his possession, which intended to expose the untruthfulness of those facts. In such situations, it was not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available, but one of acting on fresh information. Since the belief is that of the ITO, sufficiency of the reasons for forming the belief was not for the Court to judge, but it was open to an assessee to establish that there in fact existed no belief or that the belief was not a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court could look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and, further, whether that material had any rational connection with or a live-link for the formation of the requisite belief.

In the background of aforesaid decisions initiation of the proceedings for reassessment, in the present case, can never be held to be illegal when, prima facie, the ITO had reason to believe and formed an opinion that the assessee had not disclosed fully and truly all the material facts at the time when the assessment orders have been passed. It is for the ITO to consider the reliability and credibility of the matter requiring reopening of the assessment and for that matter, prima facie, the opinion of the ITO is final at that stage and the High Court, while exercising the power under Art. 226 of the Constitution of India, cannot go into sufficiency or adequacy of the materials which were considered by the ITO while at the time of formation of the opinion. It was the jurisdiction of the ITO to consider the materials and to initiate proceedings and when there is, prima facie, materials at the hand of the ITO, the High Court in exercise of the power under Art. 226 of the Constitution of India should not interfere with the discretion of the ITO when no case of mala fide has been established. The sufficiency or correctness of the material is not a matter to be considered at this stage. We are of the opinion that there was prima facie some materials on the basis of which the ITO reopened the case. The interference made by the learned single Judge, in our view, was unwarranted as the purpose of s. 147(a) of the Act is to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of the original assessment. The judgment under appeal passed by the learned single Judge is, therefore, set aside. The appeal is allowed.

10. We, however, make it clear that we have no occasion to go into the rival contentions of the parties and the parties will be free to agitate all points before the appropriate authority and the authority concerned will decide the matter in accordance with law expeditiously. There will be no order as to costs.

Ashok Kumar Mathur, C.J. :

I agree.

[Citation : 269 ITR 338]

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