1971 (5) TMI 14 - HC - Income Tax

Reassessment - revised return discloses higher profits or income than what was disclosed in the earlier return - notice under section 147 cannot be challenged by assessee on the ground that the Income-tax Officer had no jurisdiction to issue the notice

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue a notice under sections 147 and 148 of the Income-tax Act, 1961.
2. Whether there was escapement of income in the assessment.
3. Validity of the revised return filed by the appellant and its consideration in the assessment process.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Issue Notice Under Sections 147 and 148:
The appellant challenged the jurisdiction of the Income-tax Officer (ITO) to issue a notice under sections 147 and 148 of the Income-tax Act, 1961. The ITO's jurisdiction to reassess income arises if there is reason to believe that income chargeable to tax has escaped assessment. The court observed that the ITO had information in her possession which provided grounds for such a belief. The court referenced the Supreme Court's decision in Commissioner of Income-tax v. A. Raman and Co., which held that the jurisdiction to reassess is not affected even if the information could have been obtained from previous records but was not. The ITO's belief must be held in good faith and not merely as a pretence, as per S. Narayanappa v. Commissioner of Income-tax.

2. Whether There Was Escapement of Income in the Assessment:
The appellant argued that there was no escapement of income because the profit from construction work, which was initially left out from the first return but included in the revised return, was considered by the ITO in the assessment order. The court noted that the ITO did take into consideration the profit from the construction work as it was shown in the balance sheet and profit and loss account filed with the first return. The court concluded that the omission to include this item in the first return and its subsequent inclusion in the revised return did not conclusively prove escapement of income. However, the court also noted that the revised return disclosed higher profits, which prima facie justified the issuance of a notice under sections 147 and 148.

3. Validity of the Revised Return Filed by the Appellant and Its Consideration in the Assessment Process:
The appellant filed a revised return before the assessment order was made, showing higher profits. The trial court found that the revised return was not before the ITO when the assessment order was made. The court held that the revised return, disclosing higher profits, invited the ITO to make an assessment order based on it. The ITO must deal with the revised return according to the provisions of the Act, which can only be done by reopening the assessment under sections 147 and 148. The court emphasized that an ITO is not justified in ignoring a revised return filed by an assessee. The revised return must be dealt with by reopening the assessment and making a fresh assessment. The court concluded that the appellant, having filed a revised return disclosing higher profits, cannot challenge the notice under section 147 on the grounds of lack of jurisdiction.

Conclusion:
The appeal was dismissed, and each party was ordered to pay its own costs. The court held that the ITO had jurisdiction to issue the notice under sections 147 and 148, and the revised return filed by the appellant justified the reopening of the assessment. The court found that the appellant was not entitled to any relief under article 226 of the Constitution.