2011 (1) TMI 48 - HC - Income Tax

Notice u/s 148 - assessing officer has assumed jurisdiction to initiate the proceedings under Section 147 and issued notice under Section 148 of the Act on the basis of certain statements recorded by the Directorate of Investigation - Held that - the petitioner is desirous of an adjudication by the writ court with regard to the merits of the controversy. In fact the petitioner requires this Court to adjudge the sufficiency of the material and to make a roving enquiry that the initiation of proceedings under Sections 147 and 148 of the Act is not tenable. The same does not come within the ambit and sweep of exercise of power under Article 226 of the Constitution of India. It is open to the assessee to participate in the re-assessment proceedings and put forth its stand and stance in detail to satisfy the assessing officer that there was no escapement of taxable income - writ petition dismissed - against assessee

Issues Involved:
1. Jurisdiction to initiate proceedings under Section 147 and issuance of notice under Section 148 of the Income Tax Act, 1961.
2. Validity of the "reason to believe" versus "reason to suspect."
3. Adequacy and specificity of the material relied upon by the revenue.
4. Compliance with the principles of natural justice in disposing of objections.
5. Sufficiency of material for reopening the assessment.

Detailed Analysis:

1. Jurisdiction to Initiate Proceedings under Section 147 and Issuance of Notice under Section 148:
The petitioner challenged the notice dated 25th February 2010, issued under Section 148 for the assessment year 2003-04, arguing that the assessing officer assumed jurisdiction based on statements recorded by the Directorate of Investigation without forming an independent opinion. The petitioner contended that Section 147 requires a "reason to believe" and not merely a "reason to suspect."

2. Validity of the "Reason to Believe" versus "Reason to Suspect":
The petitioner argued that the "reason to believe" must have a direct nexus or live link with the materials relied upon, and the information provided was unspecific and vague. The petitioner emphasized that the reasons recorded must show the application of mind by the assessing officer, and the absence of such application makes the order vulnerable in law. The court referenced several judgments, including Raymond Woolen Mills Ltd. v. Income Tax Officer, which held that the sufficiency or correctness of the material is not to be considered at the initiation stage.

3. Adequacy and Specificity of the Material Relied Upon by the Revenue:
The petitioner highlighted that no details of the persons alleging bogus transactions were provided, and the nature of the alleged accommodation entries was not referred to in the "reason to believe." The court noted that the assessing officer must record reasons for issuing notice, and these reasons must reflect why the officer believes income has escaped assessment. The court cited Birla VXL Ltd. v. Assistant Commissioner of Income Tax, emphasizing that reasons must disclose the process of reasoning.

4. Compliance with the Principles of Natural Justice in Disposing of Objections:
The petitioner argued that the objections raised were not disposed of in conformity with the decision in GKN Driveshafts (India) Ltd. v. Income Tax Officer, which requires that objections to reopening should be considered and disposed of in conformity with natural justice. The court noted that the objections were dealt with carefully, and the assessing officer referred to specific information from the Directorate of Investigation.

5. Sufficiency of Material for Reopening the Assessment:
The court referenced several cases, including Ganga Saran & Sons P. Ltd. v. ITO, which held that the sufficiency of reasons for forming the belief is not for the court to judge. The court emphasized that the belief must be reasonable and based on relevant and material reasons. In the present case, the court found that the assessing officer had appropriately understood the "reason to believe" and there was material justifying the issuance of the notice.

Conclusion:
The court dismissed the writ petition, stating that the petitioner was seeking an adjudication on the merits of the controversy, which is not within the ambit of the writ court's power under Article 226 of the Constitution of India. The petitioner was advised to participate in the reassessment proceedings and present its case before the assessing officer. The court clarified that any observations made in the order would not prejudice the petitioner's plea during the reassessment proceedings.

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