1982 (7) TMI 67 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the quashing of notices issued under section 148 of the Income Tax Act, 1961 to a partnership firm regarding the assessment years 1972-73, 1973-74, and 1974-75 based on the contention of escapement of income due to interest payments to the wives of the partners of the firm.

Assessment Year 1965-66 and 1966-67:
In these years, deposits made by the wives of the partners were treated as income from undisclosed sources by the Income Tax Officer (ITO) and added to the firm's total income. The genuineness of these deposits was not accepted. The petitioner challenged the inclusion of these amounts in their income.

Assessment Year 1967-68:
Further deposits were made by the wives of the partners, and interest payments were claimed to have been made to them. The interest payments were allowed as permissible deductions in computing the firm's total income for this year.

Assessment Year 1968-69:
Additional deposits were made, and interest payments were made to the wives of the partners. The deposits were assessed as income from undisclosed sources, but the interest payments were treated as allowable deductions by the ITO.

Assessment Year 1969-70 to 1971-72:
While no fresh deposits were made in the accounts of the ladies, interest amounts paid to them were allowed as deductions in computing the firm's total income for these years.

Assessment Year 1972-73 to 1975-76:
For these years, interest amounts paid to the wives of the partners were allowed as deductions, except for minor disallowances in some instances. However, in the assessment for the year 1975-76, the ITO disallowed the entire interest paid to the ladies and issued notices under section 148 of the Act for the previous years.

Judgment:
The petitioners challenged the issuance of notices for the assessment years 1972-73 to 1974-75, arguing that the reasons given for reopening the assessments were based on a change of opinion by the ITO, which was erroneous. The High Court agreed with the petitioners, noting that the impugned notices were indeed based on a change of opinion and lacked any new information or grounds for reassessment. Therefore, the court quashed the notices issued under section 148 for the mentioned assessment years.