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TMI Blog2004 (8) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished its factory for the manufacture of ethyl acetate, a chemical used in the manufacture of paints, etc., during the financial year 1993-94. It commenced production on January 16, 1995. Petitioners Nos. 2 and 3 became directors of petitioner No. 1 during the assessment year 1993-94. However, they resigned from the directorship of petitioner No. 1 on March 25, 1996, the fact which was recorded by the Registrar of Companies, in March, 1996, itself. Petitioner No. 1 had received share application money from its directors and other individuals to the extent of Rs. 38,66,000 during the previous year relevant to the assessment year 1993-94. Petitioner No. 1 also borrowed money from various sources during this period aggregating Rs. 12,23,000. Similarly, during the previous year relevant to the assessment year 1994-95, petitioner No. 1 had received share application money from its directors and other individuals to the extent of Rs. 19,34,000 and borrowed money from various other sources aggregating Rs. 2,19,000. According to the petitioners, as no income had been earned during the assessment years 1993-94 and 1994-95, petitioner No. 1 did not file any return of income for these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiating the proceedings under section 147 and issuance of the notices under section 148 of the Act. Moreover, the reasons given in the report of the income-tax Inspector did not constitute relevant material for initiating the proceedings under section 147 and issuance of notices under section 148 of the Act. We have heard Sri S.P. Gupta, learned senior counsel assisted by Sri S.D. Singh on behalf of the petitioners, and Sri Ashok Kumar, learned standing counsel appearing for the respondents. Sri S.P. Gupta, learned senior counsel, submitted that as the notices issued under section 148 of the Act had not been served upon petitioner No. 1, the entire reassessment proceedings are void and liable to be quashed. In the alternative he submitted that the present proceedings under section 147 of the Act have been initiated on the basis of the report dated April 20, 1999, submitted by the income-tax inspector and the Assistant Commissioner of Income-tax, Circle 1, Meerut, without any application of mind had directed for issuance of notices under section 148 of the Act for these two assessment years. Relying upon a decision of the hon'ble Supreme Court in the case of Chhugamal Rajpal v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Major Tikka Khushwant Singh [1995] 212 ITR 650 (SC) has held that from the 1922 Act the position regarding service of notice under section 148 has undergone a sea change in the 1961 Act and the only requirement for taking action for issuance of notice under section 148 is that the notice should be issued within the period of limitation. Thus, the notices issued is held to have been issued within the prescribed period of limitation under section 148 of the Act. Under section 147 of the Act the proceedings for the reassessment can be initiated only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The question whether the Assessing Officer had reasons to believe is not a question of limitation only but is a question of jurisdiction, a vital thing, which can always be investigated by the court in an application under article 226 of the Constitution as held in Daulatram Rawatmal v. ITO [1960] 38 ITR 301 (Cal); Jamna Lal Kabra v. ITO [1968] 69 ITR 461 (All); Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); C. M. Rajgharia v. ITO [1975] 98 ITR 486 (Patna) and Madhya Pradesh Industries Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mote and far fetched, which would warrant the formation of the belief relating to escapement of income of the assessee from assessment, as held by the hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid as held in the case of Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC). Thus, it is well settled that the "reason to believe" under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Further, this court in proceedings under article 226 of the Constitution of India can scrutinize the reasons recorded by the Assessing Officer for initiating the proceedings under section 147/148 of the Act. The sufficiency of the material cannot be gone into but relevancy c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are bogus. Hence, proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are: 1. Seth Bhagwan Singh Sricharan, 2. Lakha Singh Lal Singh, 3. Radhakissen Shyam Sunder. The amount of escapement involved amounts to Rs. 1,00,000. (Sd.) S.P. Chaliha, 30-4-1966. Income-tax Officer, A-Ward, Muzaffarpur. The apex court had found that the report of the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report and he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions and appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of lection 151(2) of the Act. The apex court, therefore, held that the Income-tax Officer did not have any reason to believe that inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court dismissed the appeals, observing that since the reasons for reopening of assessments under section 148 had been disclosed in respect of five assessment years, the Assessing Officer had to dispose of the objections, if filed, by passing a speaking order before proceeding with the assessments for those years." The Constitution Benches of the hon'ble Supreme Court, in K.S. Rashid and Son v. Income-tax Investigation Commission [1954] 25 ITR 167 AIR 1954 SC 207; Sangram Singh v. Election Tribunal, AIR 1955 SC 425; Union of India v. T.R. Varma [1957-58] 13 FJR 237; AIR 1957 SC 882; State of U.P. v. Mohammad Nooh, AIR 1958 SC 86 and K.S. Venkataraman and Co. (P.) Ltd. v. State of Madras [1966] 60 ITR 112; [1966] 17 STC 418, held that article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. The court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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