1988 (7) TMI 91 - AT - Income Tax

Summary

Issues:
Reopening of assessments under section 147(a) of the Income-tax Act based on alleged concealment of profits through bogus purchases. Jurisdiction of the Income-tax Officer to reopen assessments. Sufficiency of reasons for reopening assessments. Duty of the assessee to disclose fully and truly all material facts. Validity of subsequent statement of a third party as a basis for reopening assessments.

Analysis:
The judgment pertains to an appeal by the assessee against the consolidated order of the Commissioner of Income-tax (Appeals) for assessment years 1972-73 and 1973-74. The Income-tax Officer completed original assessments for these years, but later re-opened them under section 147(a) of the Income-tax Act based on alleged concealment of profits through bogus purchases. The reasons for reopening cited concealment of profits by showing bogus purchases, supported by statements from a third party, which led to the assessments being re-opened. The assessee contended that there was no failure to disclose material facts during the original assessments and challenged the jurisdiction of the Income-tax Officer to reopen the assessments.

During the original assessments, the Income-tax Officer conducted a thorough inquiry into the purchases made from a specific distributor, including recording statements and examining documentary evidence. However, the subsequent statement of the distributor led to the reopening of assessments. The assessee argued that it had fulfilled its duty by disclosing all primary facts during the original assessments, and any subsequent contradictory statements from a third party should not form the basis for reopening assessments under section 147(a).

The judgment extensively references the legal principles laid down by the Hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das, emphasizing that the duty of the assessee is to make a true and full disclosure of primary facts, and the Income-tax Officer must have reasonable grounds to believe there was non-disclosure of material facts for reopening assessments. The court highlighted that the reasons for forming a belief must have a rational connection with the alleged escapement of income and not be based on vague or indefinite material.

Ultimately, the tribunal held that while reassessment could not be made under section 147(a), it could potentially be pursued under section 147(b). However, since the reassessment under section 147(b) was time-barred, the reassessments for both years were canceled, and the appeals by the assessee were allowed. The judgment underscores the importance of a valid basis and rational connection for reopening assessments under the Income-tax Act, ensuring that the reasons for reopening are not founded on mere suspicion but on substantial material indicating non-disclosure of essential facts by the assessee.