Orissa High Court
Sambalpur Rolling And Flour Mill Pvt. ... vs Income-Tax Officer, Ward-A And Anr. on 8 December, 1987
Equivalent citations: [1988]173ITR588(ORISSA)
Author: G.B. Patnaik
Bench: G.B. Patnaik
JUDGMENT G.B. Patnaik, J.
1. A common question of law having been raised in these four writ petitions, these writ petitions were heard together and are being disposed of by this common judgment. The petitioner has approached this court against the notice issued under Section 148 of the Income-tax Act (hereinafter referred to as " the Act ") by the Income-tax Officer, Ward-A, Sambalpur, and the four different writ petitions relate to four different notices for different assessment years, O.J.C. No. 1621 of 1979 being in respect of the assessment year 1972-73, O.J.C. No. 1622 of 1979 being in respect of the assessment year 1973-74, O.J.C. No. 1623 of 1979 being in respect of the assessment year 1976-77 and O.J.C. No. 1624 of 1979 being in respect of the assessment year 1975-76. The Income-tax Officer has issued the notices under Section 148 of the Act, he having reason to believe that income chargeable to tax has escaped assessment for the assessment years in question.
2. The petitioner's case briefly stated is that the petitioner had duly filed its returns for the assessment years in question and for the assessment year 1972-73, the assessment was completed under Section 143(3) of the Act on November 30, 1972. Similarly, for the assessment year 1973-74, the assessment was completed in November, 1973. On appeals being carried against the assessments made for both these years, the Appellate Assistant Commissioner disposed of the appeals on April 2, 1974, The matter was carried in second appeal to the Tribunal and the Tribunal disposed of the second appeal in respect of the assessment pertaining to the assessment year 1972-73, by order dated February 17, 1975. So far as the assessment year 1975-76 is concerned, the Income-tax Officer completed the assessment in February, 1976, and the appeal against the same was disposed of by the Appellate Assistant Commissioner on March 31, 1976. The assessment for the assessment year .1976-77 was also duly completed by the Income-tax Officer. In October, 1979, notices under Section 148 of the Act were issued for all these assessment years and the said notices have been annexed to the writ petitions. On receiving the said notices, the petitioner approached the Income-tax Officer to know the reasons for reopening the assessment and the reasons not having been communicated, the petitioner has approached this court alleging, inter alia, that the Income-tax Officer has no reason to believe that on account of omission or failure on the part of the assessee, income chargeable to tax has escaped assessment and since that is the pre-condition for exercise of jurisdiction under Section 147 of the Act, the impugned notices and the proceedings are liable to be quashed. The petitioner has further asserted that it is entitled to know the reasons and the materials which formed the basis of satisfaction of the Income-tax Officer for invoking his jurisdiction under Section 148 of the Act, so that it can give an explanation to the show-cause notice issued and the same not having been supplied, a direction should be issued to the Income-tax Officer to supply the reasons and all the materials to the assessee.
3. In the return filed on behalf of the opposite parties, it is the common stand in all these writ petitions that on the materials before the Income-tax Officer, he had reason to believe that income chargeable to tax has escaped assessment and, accordingly, he had sent the proposal to the Commissioner (opposite party No. 2) to accord an approval for initiation of proceedings under Section 147(a) of the Act. The said opposite party No. 2 having been satisfied with the materials on record accorded approval, whereafter, notices under Section 148 were issued to the petitioner. It has been categorically asserted in the counter-affidavit that the recorded reasons can be produced before the court for verification if required, but the assessee is not entitled to see the same at this stage, though the assessee after filing reply to the show-cause notice and producing its accounts would certainly be entitled to look into the materials if such materials are intended to be used against it. On these assertions, it was prayed that the writ applications are liable to be dismissed.
4. Section 147 of the Act empowers the Income-tax Officer to assess the income which escaped assessment in the relevant assessment year. The said power, though quite wide, yet is conditioned because of the use of the expression " reason to believe " in the said section and, therefore, the two pre-conditions which must be satisfied to confer jurisdiction on the Income-tax Officer under Section 147(a) are that the Income-tax Officer must have " reason to believe " that income chargeable to tax has escaped assessment and that he must have reason to believe that such escapement has occurred "by reason of the omission or failure on the part of an assessee to make a return " or " to disclose fully and truly all material facts necessary for his assessment for that year". The expression " reason to believe " postulates belief and the existence of reasons for that belief. The existence of reasons for the belief is certainly justiciable but not the sufficiency of the reasons. In other words, if an assessee alleges that the Income-tax Officer had no material before him for satisfying the requirement that he had "reason to believe ", then the Income-tax Officer must establish the same. While interpreting a similar provision of the Indian Income-tax Act, 1922, namely, Section 34, in the case of S. Narayanappa v. CIT [1967] 63 ITR 219, the Supreme Court observed (headnote):
" Two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under Section 34 of the Income-tax Act in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under-assessed ; and (ii) he must have reason to believe that such ' under-assessment' had occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under Section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. If there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is, of course, open to the assessee to contend that 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. "
5. In the case of Modi Spinning and Weaving Mills Co. Ltd. v. ITO [1970] 75 ITR 367, the Supreme Court reiterated the aforesaid view. In this view of the matter, since the petitioner had made an assertion in the writ petition that the Income-tax Officer had no material from which he could have entertained the reasonable belief with regard to the pre-conditions for exercising jurisdiction under Section 147, we had adjourned this case in the course of hearing to enable the Department to produce the relevant rile, wherein reasons have been recorded. Learned standing counsel for the Department produced before us the records where the reasons have been recorded and after perusing the same, we are satisfied that there are sufficient materials before the Income-tax Officer for entertaining a reasonable belief that income chargeable to tax for the assessment years in question has escaped assessment. In this view of the matter, we find no justification in the assessee's assertion that the concerned officer had no reason to believe that on account of omission or failure on the part of the assessee, income chargeable to tax has escaped assessment. This Submission of learned counsel for the petitioner is accordingly devoid of any Substance.
6. So far as the second Submission of learned counsel is concerned, we also do not find any Substance in the same. In S. Narayanappa's case [1967] 63 ITR 219 (SC), referred to earlier, the Supreme Court had also observed that there was no requirement in any of the provisions of the Act or in the section laying down as a condition for the initiation, of the proceeding that the reasons which induced the Commissioner to accord sanction to proceed under 34 must also be communicated to the assessee. Section 34 of the Indian Income-tax Act, 1922, which came up for consideration in the above case is in pari materia with Section 147 of the present Act. Therefore, the said observation would equally apply when the Income-tax Officer exercises his jurisdiction under Section 147 and, consequently, it must be held that the Income-tax Officer did not commit any error of law in not communicating the reasons to the assessee. The second Submission of learned counsel is also devoid of any merit.
7. In the result, the writ petitions fail and are accordingly dismissed. The interim orders staying further proceedings in the matter of assessment are vacated. Since the matter has been unduly delayed in this court, the Assessing Officer may expedite the hearing of assessment proceedings.
K.P. Mohapatra, J.
8. I agree.