2009 (4) TMI 131 - HC - Income Tax

Issue of notice u/s 147 Held that - The Assessing Officer had applied his mind and then passed a reasoned order for issuing notice under section 148. There is no dispute on the point that mere issuance of notice would not conclude the issue finally. At that stage it would be sufficient if the Revenue demonstrates that there were good reasons which were recorded by the Assessing Officer by applying his mind. We find that this court shall not interfere at the stage of mere issuance of notice. The petitioner is not remedyless and all the opportunities which are available to the petitioner in law could be utilized by the assessee notice issued u/s 147 to be complied with.

Issues Involved:
1. Validity of the proposed action under section 147 of the Income-tax Act, 1961.
2. Treatment of income from the sale of the right to purchase property.
3. Issuance of notice under section 148 of the Income-tax Act.
4. Application of mind by the Assessing Officer in the initial assessment under section 143(3).
5. Scope and effect of sections 147 and 148 post-1989 amendments.

Issue-wise Detailed Analysis:

1. Validity of the proposed action under section 147 of the Income-tax Act, 1961:
The petitioner-assessee challenged the proposed action under section 147 by the Deputy Commissioner of Income-tax, Circle 2(1) Dhule, dated May 17, 2000. The petitioner contended that the income from the sale of the right to purchase property was previously assessed under section 143(3) and should not be reassessed under section 147. The respondents argued that the Assessing Officer had reasons to believe that the income had escaped assessment, justifying the reopening under section 147.

2. Treatment of income from the sale of the right to purchase property:
The petitioner disclosed income derived from the sale of the right to purchase an open plot at Kothrud, Pune, as per the agreement dated January 2, 1995. The income was initially assessed under section 143(3) on January 9, 1998. The Deputy Commissioner later issued a notice under section 154, indicating that the long-term capital gain was to be treated as casual income and taxed at 40%. The petitioner argued that this change of treatment was unjustified.

3. Issuance of notice under section 148 of the Income-tax Act:
The Deputy Commissioner issued a notice under section 148 on December 29, 1999, which the petitioner replied to on January 5, 2000. The petitioner argued that the notice was based on a mere change of opinion, which is not sufficient grounds for reopening an assessment. The respondents maintained that the notice was justified as there was a reasonable belief that income had escaped assessment.

4. Application of mind by the Assessing Officer in the initial assessment under section 143(3):
The court observed that the initial assessment order under section 143(3) lacked detailed reasoning and application of mind by the Assistant Commissioner. The order did not address the valuation of the land or the issue of whether the income was a capital gain or casual income. This lack of detailed reasoning justified the reopening of the assessment under section 147.

5. Scope and effect of sections 147 and 148 post-1989 amendments:
The court referred to several judgments to clarify the scope of sections 147 and 148. It was noted that the formation of "reason to believe" and recording of reasons are imperative before reopening an assessment. The court cited judgments like CIT v. Kelvinator of India Ltd. and Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. to emphasize that the Assessing Officer must have a cause or justification to believe that income had escaped assessment. The court concluded that the Assessing Officer had applied his mind and recorded good reasons for issuing the notice under section 148.

Conclusion:
The court found that the Assessing Officer was justified in issuing the notice under section 148 and that the petitioner had sufficient remedies available under the law to contest the reassessment. The petition was dismissed, and the rule was discharged with no order as to costs. The court did not find it necessary to address other issues related to the scope of proceedings under sections 147 and 148 and the effect of the order passed under section 143.

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