1971 (8) TMI 79 - HC - Income Tax

Initiation of reassessment proceedings under section 147(a) the escaped income officer had belief that income likely to have escaped assessmet was more than Rs. 50,000 - but the income that actually found to have escaped is less than Rs. 50,000 - validity of reassessment

Summary

Issues:
1. Validity of initiation of reassessment proceedings under section 147(a) based on estimated escaped income.
2. Validity of assessment when the ultimate assessed income was lower than the estimated amount.
3. Permissibility of reopening assessment under section 34 of the old Act of 1922 for escaped income exceeding Rs. 1 lakh.

Analysis:

Issue 1:
The Income-tax Appellate Tribunal referred questions regarding the validity of reassessment proceedings under section 147(a) based on an estimated escaped income of Rs. 83,675. The Tribunal observed that the Income-tax Officer had reasonable grounds to believe that the income had escaped assessment, justifying the initiation of proceedings. The Appellate Assistant Commissioner scrutinized the items included in the estimate and found that Rs. 83,675 could reasonably be treated as the assessee's income at the time of initiation of proceedings. This included speculation profits, credits in accounts, and estimated expenses. The Tribunal upheld the initiation of proceedings, emphasizing the rational belief of the Income-tax Officer and the evidence supporting the estimate.

Issue 2:
Regarding the validity of assessment when the ultimate assessed income was lower than the estimated amount, the Tribunal held that if the Income-tax Officer had reasonable grounds to believe that the escaped income could amount to Rs. 50,000 or more, the assessment could not be challenged based on the final determined amount being less than Rs. 50,000. The Tribunal stressed that the Income-tax Officer's belief must be rational and reasonable, supported by evidence available at the time. In this case, although the final assessed income was Rs. 34,504, the initiation of proceedings and the estimate of escaped income at Rs. 83,675 were deemed valid.

Issue 3:
The question of permissibility of reopening the assessment under section 34 of the old Act of 1922 for escaped income exceeding Rs. 1 lakh was addressed. The Tribunal found that since the estimated escaped income was more than Rs. 83,000, the Income-tax Officer was justified in initiating proceedings under section 147. The notices issued under section 148 were deemed valid, and the proceedings taken thereunder were upheld. The Tribunal concluded that the Income-tax Officer had the authority to reopen the assessment based on the estimated escaped income exceeding the threshold.

In conclusion, the High Court answered all three questions in the affirmative, ruling in favor of the department and against the assessee. The judgment emphasized the importance of the Income-tax Officer's rational belief and the evidence supporting the estimate of escaped income in determining the validity of reassessment proceedings and subsequent assessment.