2000 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the proceeding initiated u/s 147 of the Income-tax Act, 1961.
2. Doctrine of merger and its applicability.
3. Influence of superior authority on the initiation of proceedings.
4. Full and true disclosure by the assessee.
5. Limitation for reopening the assessment.

Summary:

1. Validity of the proceeding initiated u/s 147 of the Income-tax Act, 1961:
The petitioner challenged the initiation of proceedings u/s 147 for reopening assessments for the years 1989-90 to 1995-96, arguing that it was not due to any failure on their part to disclose material facts but based on an enquiry u/s 133(6) and 131, which found the transaction with the sub-contractor, Sri K. N. Kutty, to be a sham. The court held that the proceedings were valid as they were based on materials collected during the enquiry, not merely on the direction of a superior officer.

2. Doctrine of merger and its applicability:
The petitioner argued that the reopening of the completed assessment was barred by the doctrine of merger, as the assessment order had merged with the appellate orders. The court found that the doctrine of merger did not apply in this case because the reopening was based on new material evidence discovered during the enquiry.

3. Influence of superior authority on the initiation of proceedings:
The petitioner contended that the proceedings were initiated at the behest of the Commissioner of Income-tax (Appeals). The court clarified that the proceedings were not initiated solely on the direction of the superior authority but on the basis of the enquiry conducted, which revealed the sham transaction.

4. Full and true disclosure by the assessee:
The petitioner claimed that they had disclosed all material facts fully and truly during the original assessment. The court noted that the material evidence for reopening the assessment came to light during the enquiry, indicating a failure on the part of the assessee to disclose material facts initially.

5. Limitation for reopening the assessment:
The petitioner argued that the initiation of proceedings after four years was illegal and without jurisdiction. The court held that the limitation for issuing notice u/s 148 is governed by section 149, which allows reopening beyond four years if the income escaped assessment due to the assessee's failure to disclose material facts. The court cited several precedents, including Phool Chand Bajrang Lal v. ITO and CIT v. Sun Engineering Works P. Ltd., to support this view.

Conclusion:
The court concluded that the assessing authority had rightly issued the notice u/s 148 for initiating reassessment proceedings. The writ applications were dismissed.