1996 (12) TMI 9 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity and legality of the notices of assessment issued by the Wealth-tax Officer.
2. Jurisdiction and limitation for reassessment under Section 17 of the Wealth-tax Act.
3. Requirement of disclosure of reasons for reassessment.
4. Compliance with procedural requirements under Section 17 of the Wealth-tax Act.
5. Finality of assessment orders under Section 16 of the Wealth-tax Act.

Detailed Analysis:

1. Validity and Legality of the Notices of Assessment:
The petitioner challenged the validity and legality of the notices of assessment (Annexures D, D-1, D-2, and D-3) issued by the Wealth-tax Officer on May 29, 1985. The petitioner argued that these notices were issued without jurisdiction, barred by limitation, and were illegal and void in law. The court examined whether the Wealth-tax Officer had valid grounds to issue these notices and whether the procedural requirements under Section 17 of the Wealth-tax Act were satisfied.

2. Jurisdiction and Limitation for Reassessment under Section 17 of the Wealth-tax Act:
The petitioner contended that the reassessment proceedings were initiated without jurisdiction and were barred by limitation. Section 17 of the Wealth-tax Act authorizes reassessment if the Wealth-tax Officer has reason to believe that the net wealth chargeable to tax had escaped assessment. The court noted that for clause (a) of Section 17(1), the Wealth-tax Officer must have reason to believe that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. For clause (b), the Officer must have information in his possession that leads him to believe that the net wealth chargeable to tax had escaped assessment. The court found no material on record to show that the Wealth-tax Officer had any valid reason to believe that the net wealth had escaped assessment.

3. Requirement of Disclosure of Reasons for Reassessment:
The petitioner requested the Wealth-tax Officer to provide the reasons for reopening the assessment, but the Officer refused to disclose them. The court emphasized that the reasons for the formation of the belief must have a rational connection or relevant bearing on the formation of the belief. The court cited precedents, including ITO v. Lakhmani Mewal Das, which held that the reasons must be held in good faith and should not be a mere pretence. The court found that the Wealth-tax Officer did not provide any reasons for reopening the assessment, which violated the procedural requirements.

4. Compliance with Procedural Requirements under Section 17 of the Wealth-tax Act:
The court examined whether the Wealth-tax Officer complied with the procedural requirements under Section 17 of the Wealth-tax Act. The court noted that the assessment orders passed under Section 16 are final and can only be unsettled if the requirements of Section 17 are satisfied. The court found that there was no material available with the Wealth-tax Officer to form an opinion or reason to believe that the net wealth chargeable to tax had escaped assessment. The court cited the case of CWT v. Malhar Rao Tatya Saheb Holkar, where it was held that the material to form such a view must be available with the Assessing Officer. The court concluded that the Wealth-tax Officer did not have any positive information to justify the reassessment.

5. Finality of Assessment Orders under Section 16 of the Wealth-tax Act:
The court emphasized that the assessment orders passed under Section 16 are final and cannot be easily unsettled. The court noted that the petitioner had disclosed all material facts and provided complete details of his wealth in the returns filed. The court found that the Wealth-tax Officer accepted these details and made the assessment orders. The court concluded that any subsequent officer could not unsettle these assessment orders unless the three requisite conditions of Section 17 were satisfied. The court held that the notices issued under Section 17 did not show any valid reason to believe that the net wealth chargeable to tax had escaped assessment.

Conclusion:
The court quashed the notices of assessment (Annexures D, D-1, D-2, and D-3) and the proceedings drawn on the basis of these notices. The petition was allowed, and there was no order as to costs. The security amount, if any, was to be refunded to the petitioner after due verification.