Income-tax---

--Reassessment---Notice---Failure to disclose material facts necessary for assessment---Conditions precedent for issuing notice under S.147(a)-- Reasons for belief must have nexus with escapement of income---Reply by Revenue after nine years, not making clear whether reasons were recorded before issue of notice---Notice under S.147(a) was not valid---Indian Income Tax Act, 1961, S.147.

The Income-tax Officer is required to satisfy two conditions laid down in section 147(a) of the Income Tax Act, 1961, before he assumes jurisdiction to issue notice under section 148 of Act, viz., (a) he must have reason to believe that income chargeable to tax had escaped assessment, and (b) he must have reason to believe that such income had escaped assessment by reasons of omission of failure on the part of the assessee (i) to make the return under section 139, or (ii) to disclose fully and truly material facts necessary, for the assessment for that year. Both these conditions must co exist to confer jurisdiction on the Income-tax Officer who is required to record reasons before initiating proceedings under section 148(2). The notice issued under section 148 of the Act, should follow the reasons recorded by the Income-tax Officer for reopening the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether such reasons are sufficient or not, is not a matter to be decided by the Court. But the existence of the belief is subject to scrutiny:

Held, that it had taken the respondents about nine years to file a reply to this petition and disclose some sketchy reasons to support the action, but even if the casual approach and inaction were overlooked, the action could still not be justified. The Revenue had not placed the record to show if reasons were recorded by the Income-tax Officer in support of his belief before issuing the notice. The notice under section 147(a) was not valid and was liable to be quashed.

Indian Oil Corporation v. ITO (1986) 159 ITR 959 (SC) and ITO v. Lakhmani Mewal Das (1976) 103 ITR 437-(SC) ref.

Ms. Choudhry for Petitioner.

V, K. Dubey for Respondent.

JUDGMENT

The petitioner-firm is engaged in manufacture and sale of medicines. It filed its return for the assessment year 1984-85, declaring its taxable income at Rs.91,640. Alongwith the return it filed all necessary documents including balance-sheet, trading account, profit and loss account, depreciation statement, etc. Upon this the respondent Income-tax Officer completed the assessment proceedings and passed the assessment order, dated March 26, 1986, under section 143(1) of the Income Tax Act, 1961. He, however, issued notice, dated March 3, 1989, for reopening of assessment for the assessment year 1984-85, on the ground that he had reason to believe that income for this assessment year had escaped assessment.

The petitioner has challenged this on the ground that it was vague and uncertain and did not disclose any reason for the reopening of the assessment and that it had asked the Income-tax Officer vide letter, dated April 17, 1989, to furnish reasons supporting the action but in vain. It is submitted that the petitioner had discharged his duty to 'disclose fully and truly all material and primary facts related to his assessment of income and the respondent-Income-tax Officer had passed an assessment order on due application of mind and on feeling' satisfied about the declaration of income and as such he had no material before him on the basis of which he could form the belief that the income for the relevant assessment year had escaped assessment.

In other words, it is sought to be projected that he had wrongly assumed the jurisdiction without satisfying preconditions laid down in section 147(a) of the Act and had proceeded in the matter in a mechanical manner. Alternatively, it is submitted that the petitioner's case was covered by the amnesty scheme and, therefore, the respondents were bound to accept the income declared. It is also made out that the reasons sought to be advanced were not germane and proximate to the underlying object of escapement of income and contemplated by section 147(a) of the Act. Reliance for this is placed on ITO v. Lakhmani Memwal Das (1976) 103 ITR 437 (SC) and Indian Oil Corporation v. ITO (1986) 159 ITR 956 (SC); 130 ITR 450 (sic).

It is well-settled that the Income-tax Officer required to satisfy two conditions laid down in section 147(a) before he assumes jurisdiction to issue notice under section 148 of the Act, viz., (a) he must have reason to believe that income chargeable to tax had escaped assessment, and (b) he must have reason to believe that such income had escaped assessment by reason of omission or failure on .the part of the assessee, (i) to make the return under section 139, or (ii) to disclose fully and 'truly material facts necessary for the assessment for that year. Both these conditions must co exist to confer jurisdiction on the Income-tax Officer who is required to record reasons before initiating proceedings under section 148(2). Similarly, under section 147(a) of the Act, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it was a fit case for issuance of notice. However, there is a corresponding duty cast on the assessee to make a true and full disclosure of the primary facts at the time of original assessment.

It is also established that the notice issued under section 148 of the Act should follow the reasons recorded by the Income-tax Officer for re opening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether such reasons are sufficient or not, is not a matter to be decided by the Court. But the existence of the belief is subject to scrutiny if the assessee shows circumstances that there was no material before the Income-tax Officer to believe that the income had escaped assessment.

Having regard to all this, all that remains to be seen is whether the respondent-Income-tax Officer had satisfied the, requirements of section 147 while issuing the impugned notice under section 148 of the Act.

It is surprising that it should have taken the respondents about nine years to file a reply to this petition and disclose some sketchy reasons to support the action, but even if their casual approach and inaction was overlooked, the impugned action could still not be justified. Because it was not sure that the reasons projected by them in their belated reply were in fact the reasons which persuaded the then Income-tax Officer to form the belief for reopening the assessment. Even if these projected reasons were taken at their face value, these may still not pass the test of being germane and having proximity with the escapement of income from assessment by the assessee.

Therefore, all things considered including the lapse of time and the default of the respondents in not promptly replying to this petition and in not disclosing the record before the Court to show if reasons were recorded by the Income-tax Officer in support of his belief before issuing the notice, it would be appropriate to let the impugned notice die its own death leaving the respondents free to the future action, if any advised, strictly in conformity with the requirements of sections 147 and 148 of the Act.

This petition is accordingly partly allowed to that extent. The impugned notice is quashed. But this shall not come in the way of the respondents to take fresh action in the matter if permitted by law.

M.B.A./46/FC

Petition partly allowed.