1. Challenge to notices issued under Section 148 read with Section 147(a) of the Income-tax Act based on a government report alleging under-reporting of production. (Para 1 , 2 )
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1995 Supreme(SC) 473
SUPREME COURT OF INDIA
B.P. JEEVAN REDDY AND G.T. NANAVATI, JJ.
Income-tax Officer, Calcutta, Appellant
Versus
M/s. Selected Dalurband Coal Co. Pvt. Ltd., Respondent.
Civil Appeal No. 2394 of 1977
Decided on 29-3-1995.
Important Points
A notice under Section 148 of the Income-tax Act is valid if the assessing officer forms a 'reason to believe' based on relevant material. A government department's report, based on a joint inspection, constitutes relevant material sufficient to form such a belief, regardless of the report's ultimate accuracy.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
Income-tax Act - Section 147 (a) - Mining Department – Enquiry - Appeal preferred against judgment of Division Bench of Calcutta Court dismissing a Letters Patent Appeal preferred by Revenue against judgment of a learned Single Judge- learned Single Judge had allowed writ petition filed by respondent- challenging validity of notices issued read with Section Income-tax Act Court are concerned herein with three Assessment For notice Section was issued whereas in respect other two Assessment Years they were issued said notices were issued by Income-tax Officer on basis of letter addressed by Chief Mining Officer to him letter reads as follows -Held, Mining Department there was reporting of raising figure to extent indicated in said letter report is made by Government Department and that too after conducting a Joint inspection- It gives a reasonably specific estimate of excessive coal mining said to have been done by respondent over and above figure disclosed by it in its returns- Whether facts stated in letter are true or not is not concern at this stage- It may well that may be able to establish that stated in said letter are not true but that conclusion can be arrived at only after making necessary enquiry- At stage of issuance of notice only question is whether there was relevant material as stated above on which a reasonable person could have formed requisite belief- Since court are unable to say that said letter could not have constituted basis for forming such a belief it cannot be said that issuance of notice was invalid- Inasmuch as result of our order reassessment proceedings have now to go on court do not and court ought not to express any opinion on merits - Appeal allowed
Legal Category Hierarchy
Table of Contents
2. Whether a government department report alleging under-reporting of production constitutes relevant material for the assessing officer to form the requisite belief for issuing reassessment notices. (Para 3 )
3. A government report based on joint inspection providing specific estimates of under-reporting constitutes relevant material upon which a reasonable person could form the requisite belief. (Para 4 )
4. Issuance of notice under Section 148 requires relevant material enabling the assessing officer to reasonably and rationally form a belief that income escaped assessment. (Para 3 , 4 )
5. Appeal allowed, High Court orders set aside, and reassessment proceedings directed to proceed according to law. (Para 5 )
6. What is the prerequisite for issuing a notice under Section 148 read with Section 147(a) of the Income-tax Act?
The Income-tax Officer must have reason to believe that income chargeable to tax was under-assessed or escaped assessment because the assessee failed to disclose fully and truly all material facts necessary for the assessment. (Para 3 )
7. What constitutes the basis for the assessing officer's belief in reassessment proceedings?
There must be relevant material before the assessing officer upon which they can reasonably and rationally form the requisite opinion or belief, which is essentially a matter of subjective satisfaction. (Para 3 )
8. Is the truthfulness of the material used to form the belief for a Section 148 notice examined at the issuance stage?
No. At the stage of issuing the notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief; the truth of the facts is determined during the subsequent inquiry. (Para 4 )
JUDGMENT :
This appeal is preferred against the judgment of the Division Bench of the Calcutta High Court dismissing a Letters Patent Appeal preferred by the Revenue against the judgment of a learned Single Judge. The learned Single Judge had allowed the writ petition filed by the respondent-assessee challenging the validity of notices issued under Section 148 read with Section 147 (a) of the Income-tax Act. We are concerned herein with three Assessment Years, viz., 1961-62, 1963-64 and 1965-66. For the year 1961-62, the notice under Section 148 was issued on March 12, 1970, whereas in respect of the other two Assessment Years, they were issued on 6th November, 1990. The said notices were issued by the Income-tax Officer on the basis of the letter dated January 30,1969 addressed by the Chief Mining Officer to him. The letter reads as follows :
"Sub:Under reporting of coal raising and shortage of surface coal stock by selected Samla Colliery, Owner M/s. Selected Dalurband Coal Co.Pvt.Ltd., 137, Cotton Street, Calcutta.
A joint inspection was made in the Colliery mentioned above on 9-1-1967 by Sri K.S.Gupta, Assistant Coal Superintendent, Rangunje Division and Sri. Suniti Kumar Sarka, Mining Officer of this Mining Estates Branch, Directorate of Mines and Minerals.
As a result of underground measurement it was revealed that the Colliery Co. under reported the raising figure to the following extent during the period from 1956 to 9-1-1967.
Gr. 1:1:.36.390 M.T.
Shortage of surface coal stock was also detected to the extent of 387 M.T. of Gr. I Coal on 9-1-1967.
It has been decided to charge royalty on the aforesaid quantity of coal by the Government of West Bengal.
This is for your information and necessary action."
2. After receiving the said letter, the Income-tax Officer recorded the reasons as required by sub-section (2) of Section 148 and thereafter issued the aforesaid notices. Soon after receiving the notices, the assessee approached the High Court of Calcutta by way of writ petition, with the result mentioned above.
3. It is well settled by various decisions of this Court that the notice under Section 148 read with Section 147 can be issued only where the Income-tax Officer has reason to believe that the income profits or gains chargeable to tax had been under-assessed or escaped assessment and further that such escapement or under-assessment was occasioned by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. [We are not concerned with clause (b) of Section 147 here but only with clause (a)]. In other words, there must be relevant material before the assessing officer upon which he must reasonably and rationally form the requisite opinion (belief). The question, therefore, is whether the letter of the Chief Mining Officer aforesaid does not constitute relevant material upon which the Income-tax Officer could have formed the requisite belief? It must be remembered that the formation of belief by the Income-tax Officer is essentially within his subjective satisfaction.
4. After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income-tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on January 9,1967 by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under-reporting of the raising figure to the extent indicated in the said letter. The report is made by Government Department and that too after conducting a Joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the
