STAR AUTOMOBILES VS INCOME-TAX OFFICER
1991 P T D 69
[Madhya Pradesh High Court (India)]
Before G.G. Sohani, Actg. C.J. and K.M. Agrawal, J
STAR AUTOMOBILES
versus
INCOME-TAX OFFICER
Miscellaneous Petition No. 1427 of 1985, decided on 23/02/1989.
Income-tax---
---Reassessment---Failure to disclose material facts necessary for assessment-- Assessee's duty is to disclose primary facts---Disclosure of interest from fixed deposit---Reassessment on the ground that details regarding interest were not furnished---Not valid.
The conditions required to be fulfilled before the Income-tax Officer can exercise jurisdiction under clause (a) of section 147 of the Indian Income-tax Act, 1961, are that (i) he must have reason to believe that income has escaped assessment; and that (ii) he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year. The expression "material facts" used in clause (a) of section 147 of the Act refers only to primary facts.
Where an assessee had disclosed the amount of interest accrued on a fixed deposit and reassessment proceedings were initiated on the ground that details regarding the interest had not been furnished:
Held, that the primary facts regarding interest having been disclosed by the assessee, the Income-tax Officer had no jurisdiction to initiate proceedings for reassessment. The notice for reassessment was liable to be quashed.
B.L. Nema for Petitioner.
B.K. Rawat for Respondent.
JUDGMENT
G.G. SOHANI, ACTG. C.J.--This is a petition under Article 226 of the Constitution of India.
The material facts giving rise to this petition, briefly, are as follows:
For the assessment year 1981-82, the petitioner-firm had filed a return disclosing income of Rs. 1,25,000. The petitioner-firm had also furnished details of payment of interest and also details of interest received on fixed deposits. The Income-tax Officer framed the assessment by his order, dated March 21, 1984, and the total income of the assessee was assessed at Rs. 1,58,420. Subsequently, the respondent issued a notice on January 28, 1985, under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), seeking to reassess the income of the petitioner under section 147 of the Act. Aggrieved by that notice, the petitioner has filed this petition. The main contention urged on behalf of the petitioner is that the conditions precedent for issuance of notice under section 148 of the Act are not satisfied and hence the impugned notice is without jurisdiction.
In reply, it is contended on behalf of the respondent that the respondent has recorded reasons for reopening the assessment and that the action of the respondent is not without jurisdiction. It is, therefore, contended that the petition deserves to be dismissed.
Before we proceed to appreciate the contentions urged on behalf of the parties, it will be useful to reproduce the order (Annexure R-1) passed by the respondent recording reasons for reopening the assessment. The order is as follows:
"During the course of assessment proceedings for the assessment year 1982-83, it has been noticed that the assessee-firm has not disclosed the, amount of accrued interest on the Fixed Deposit Receipt for the assessment year 1981-82.
I have, therefore, reason to believe that income liable to tax has escaped assessment within the meaning of section 147(b) of the Act for that assessment year.
Issue notice under section 148 of the Act."
Though, in the aforesaid order, reference has been made to clause (b) of section 147 of the Act, at the time of hearing, it was conceded that reassessment would be under section 147(a) of the Act. It is well-settled that two conditions precedent are required to be fulfilled before the. income-tax Officer can exercise jurisdiction under clause (a) of section 147 of the Act: (i) he must have reason to believe that income has escaped assessment, and (ii) he must have reason to believe that such escapement is by reason of the omission or failure on the part of, the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year. It is also well-settled that the expression "material facts" used in clause (a) of section 147 of the Act refers only to primary facts. Now, in the instant case, it is not disputed that the assessee had disclosed the amount of interest accrued on the fixed deposit in the assessment year 1981-82. It is, however, contended that the details relating to the amount of interest were not furnished by the assessee. But the primary facts having been disclosed by the assessee, the Income-tax Officer had no jurisdiction to institute proceedings for reassessment. The impugned notice is without jurisdiction and deserves to be quashed.
For all these reasons, this petition is allowed. The notice "Annexure D" and the reassessment proceedings commenced in pursuance of that notice are quashed. In the circumstances of the case, the parties shall bear their own costs of this petition. Security amount, if any, be refunded to the petitioner.
Z.S./786/T Petition accepted.