2000 (3) TMI 51 - HC - Income Tax

Summary

Issues involved: Challenge to notice u/s 148 of Income-tax Act for reopening assessment for AY 1992-93 based on alleged underestimation of construction cost of commercial complex.

Jurisdictional Requirement - Reason to Believe:
The court emphasized that for invoking section 147 of the Act, the Assessing Officer must have a valid reason to believe that income has escaped assessment due to non-disclosure of material facts by the assessee. The sufficiency of grounds for forming such belief is not subject to court scrutiny, as long as the belief is held in good faith and not a mere pretence. The court clarified that not all vague or remote materials justify belief of income escapement.

Duty of Assessee and Inference by Officer:
The duty of the assessee is limited to disclosing primary facts, with the responsibility of drawing correct inferences resting on the Income-tax Officer. Mere change of opinion by the Officer, leading to an erroneous inference, does not warrant reassessment based on the same facts disclosed by the assessee.

Scope of Judicial Review and Reopening Assessment:
The Supreme Court's dicta set the parameters for reopening assessments u/s 147 read with section 148, emphasizing that the power to reopen assessments is circumscribed by the requirement of valid reasons to believe in income escapement due to non-disclosure of material facts by the assessee.

Factual Analysis - Lack of Valid Grounds for Reopening:
In the present case, the court found that the reassessment notice was solely based on a valuation report obtained long after a search operation, without any incriminating material discovered during the search relating to the construction cost. The court noted that the reasons for reopening did not align with the recorded facts during assessment, and supplementary reasons not part of the original assessment process cannot be considered.

Conclusion:
Based on the lack of valid grounds and failure to establish non-disclosure of material facts by the assessee, the court quashed the notice issued u/s 148 of the Act and allowed the writ petition, without imposing any costs.