2004 (3) TMI 59 - HC - Income Tax

Notice of reassessment limitation - prima facie satisfaction about the escapement of income - the assessee cannot draw any support from this document for challenging the validity of the proceedings under section 147 - the statement of Shankar Hari Maheshwari cannot be said to be vague. He had clearly denied having any account in the Punjab National Bank and had further stated that if there was such an account it might have been opened by someone farzi in his name with which he had no concern. In view of this categorical stand it was not necessary for the Assessing Officer to further confront him with any specific transaction in the said account for recording a prima facie satisfaction about the escapement of income Notice after four year was valid

Issues Involved:
1. Validity of notice under section 148 of the Income-tax Act, 1961.
2. Formation of "reason to believe" by the Assessing Officer under section 147.
3. Alleged failure of the petitioner to make a full and true disclosure of material facts.
4. Application of precedents and judicial decisions.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148:
The petitioner challenged the validity of the notice under section 148 of the Income-tax Act, 1961, dated March 31, 2003, which initiated proceedings under section 147 to reassess the petitioner's income for the assessment year 1996-97. The petitioner claimed that all material facts were disclosed in the original return filed on March 31, 1998, and that the reassessment was based on a reappraisal of the same material, constituting a change of opinion, which is not a valid ground for initiating proceedings under section 147.

2. Formation of "Reason to Believe" by the Assessing Officer:
The Assessing Officer recorded reasons for issuing the notice under section 148, stating that the petitioner received an amount of Rs. 99,800 through a draft deposited in its bank account, which was alleged to be an accommodation entry from M/s. Maheshwari Sons. The DDI (Investigation) report suggested that such transactions were not genuine and were used to introduce undisclosed income. The court examined whether the reasons recorded had a rational connection or live nexus with the formation of the belief about the escapement of income.

3. Alleged Failure to Make a Full and True Disclosure:
The court noted that the petitioner disclosed transactions of the sale and purchase of shares through M/s. Maheshwari Sons in the original return. However, during the investigation, Shankar Hari Maheshwari, the proprietor of M/s. Maheshwari Sons, denied having a relevant bank account, suggesting that the transactions were not genuine. The court held that the disclosure of these transactions in the original return could not be considered a full and true disclosure of material facts.

4. Application of Precedents and Judicial Decisions:
The court referred to several Supreme Court judgments, including Chhugamal Rajpal v. S.P. Chaliha, ITO v. Lakhmani Mewal Das, and Phool Chand Bajrang Lal v. ITO, to determine the validity of the reassessment proceedings. The court distinguished the present case from Chhugamal Rajpal and Lakhmani Mewal Das, noting that the information in the present case was specific and reliable, unlike the vague and general information in the earlier cases. The court found that the present case was fully covered by the ratio of Phool Chand Bajrang Lal, where subsequent specific information exposed the falsity of the original disclosure, justifying the reassessment.

Conclusion:
The court dismissed the writ petition, finding no merit in the challenge to the initiation of proceedings under section 147. The court clarified that its decision was limited to the validity of the initiation of proceedings and did not address the merits of the case, which would be determined by the Assessing Officer based on the evidence. The court also addressed a miscellaneous application related to the report of the Deputy Director of Investigation, noting that it could not be entertained after the conclusion of the hearing and that the petitioner must be confronted with all material during the assessment proceedings.

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