9911796707
TMI Blog1994 (1) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... on the assessee, a private limited company, for the said assessment years were completed on a total income of Rs. 50,843 for the assessment year 1964-65 and on a loss of Rs. 82,997 for the assessment year 1965-66. On August 17, 1967, the Income-tax Officer reopened both the assessments by making the following notings in the order sheets: "17-8-1967 : Assessment year 1964-65: During the year ended December 31, 1963, the assessee-company introduced fictitious loans in the books in the name of Messrs. Topan Dass Gopal Dass of Rs. 10,000 and debit of interest to this party was also fictitious. Facts about this loan were not truly disclosed. Action under section 147(a)/148 is taken to assess this escaped income. (Sd.) Income-tax Officer. 17-8-1967 : Assessment year 1965-66 : During the year ended December 31, 1964, the assessee-company introduced fictitious loans in the names of Topan Dass Gopal Dass-Rs. 95,000, Faquirchand Lachman Dass-Rs.90,000, Satish and Co.-Rs. 1,08,000 and Om Prakash and Co.-Rs. 2,10,000. The debit raised in books in respect of interest to these parties is also fictitious. Escaped income is estimated at Rs. 5,50,000 approximate interest. Action under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th interest) made in the assessment years 1964-65 and 1965-66, respectively. He, however, upheld the additions made on account of unexplained cash credits appearing in the books of account of the assessee in the names of Messrs. Gopaldas Udhavdas, in the assessment year 1964-65, and in the name of Messrs. Faquirchand Lachmandas in the assessment year 1965-66. Disallowance of interest on the said loans was also upheld. The Revenue accepted the first appellate order but the assessee appealed to the Income-tax Appellate Tribunal. Before the Tribunal, the assessee primarily challenged the propriety and legality of the assessment proceedings and It was urged that the orders of the Income-tax Officer did not show what information he had for initiating action under section 148/147(a) of the Act and it was not established if any rational connection or direct nexus existed between the material coming to his notice and the formation of his belief that there had been escapement of income for the relevant assessment years. It was pleaded that the existence of these cash credits and the payment of interest thereon was fully reflected in the books of account of the assessee and the same were op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d April 26, 1967, from the Assistant Director of Inspection regarding bogus hundi loan transactions conducted by the assessee. The names of the three creditors, as referred to above, were specifically mentioned. We apprised the assessee that this information had existed with the Income-tax Officer. The Revenue, however, did not allow further inspection of the file to the assessee on the ground that it contained confidential information and matters. It is thus clear that in the present case, the Income-tax Officer had definite information from the Assistant Director of Inspection of the Revenue Department about non-genuineness of the disputed cash credits." The assessee having failed to persuade the Tribunal to make a reference under section 256(1) of the Act, filed an application under section 256(2) of the Act and this court, vide its order dated April 30, 1981, directed the Tribunal to refer the aforesaid questions. Mr. S. K. Aggarwal, learned counsel for the assessee, submitted that the condition precedent for the Income-tax Officer to assume jurisdiction to issue a notice under section 148 of the Act was not satisfied in the instant case inasmuch as no reasons have been reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so." From the plain language of the above sections, it is clear that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue a notice under section 148 of the Act in respect of an assessment. These are : (1) The Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment ; and (2) He must have reason to believe that such escapement was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The two conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating reassessment proceedings as required by section 148(2) of the Act. There is a plethora of case-law on the subject of reassessment under section 147(a) of the Act, but we do not propose to burden the judgment by making a reference to them all because we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. " In the present case, it is not in dispute that before issuing the notice under section 148 of the Act, the Income-tax Officer did make notings on the order sheets on August, 17, 1967 (reproduced above), in respect of both the assessment years and we find no difficulty in holding that these notings meet the requirements of section 148(2) of the Act. But the real question which falls for determination is whether there was any material available on the record of the assessee from which the Income-tax Officer could form the requisite belief and whether that material had any rational connection with or relevant bearing on the formation of the requisite belief because the contention of Mr. Aggarwal is that the information, if at all there is any, contained in the letter of the Assistant Director of Inspection's letter dated April 26, 1967, and referred to by the Tribunal is vague and cannot justify the formation of any belief that the assessee's income for the assessment years 1964-65 and 1965-66 has escaped assessment. We are of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e information furnished by the Assistant Director of Inspection was definite. We, therefore, reject the contention that there was no material before the Income-tax Officer for initiating a reasonable belief that the income of the assessee for the relevant assessment years had escaped assessment. At this stage, we may also deal with another point raised on behalf of the assessee. It is submitted by Mr. Aggarwal that during the course of hearing of the assessee's petition under section 256(2) of the Act, the Revenue's counsel had made a statement that there were no reasons recorded by the Income-tax Officer and got approved by the Commissioner as stated in the order of the Tribunal, which would show that no reasons had in fact been recorded by the Income-tax Officer before initiating proceedings under section 147(a) of the Act. In our view, the contention is stated to be rejected. The said statement of the Revenue's counsel is not relevant for the purpose of answering the present reference because we have already recorded a finding that the Income-tax Officer did record his reasons on August 16, 1967, before initiating the assessment proceedings. Even otherwise it is not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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