Ved Prakash Prabhudayal Agarwal vs M.R. Patel

Pendse, J.—The petitioners are the trustees of Bhoruka Charitable Trust and the trust was created under a trust deed dated April 2, 1962. The trust was duly registered on May 23, 1962, with the Charity Commissioner. The petitioners are entitled to exemption of its income from the properties u/s 11 of the income tax Act, 1961. The petitioners filed returns for the assessment years 1972-73 and 1973-74, and the assessments were completed by an order dated March 12, 1973, and September 22, 1976, respectively, passed by the 1st ITO, Bombay Refund Circle, Bombay. It is required to be stated that it was found by the income tax authorities while passing the two orders that the entire income of the trust was exempted from liability to pay tax u/s 11 of the said Act. These two orders for the relevant years were passed after the ITO made the requisite enquiries and the proceedings were completed after notice u/s 143(3) of the said Act.

On March 28, 1977, respondent No. 1, ITO, served the petitioners with notices u/s 148 of the income tax Act, 1961, for the assessment years 1972-73 and 1973-74. By the impugned notices respondent No. 1 informed the petitioners that the income of the trust had escaped assessment within the meaning of section 147 of the said Act, and, therefore, respondent No. 1 proposed to reopen the assessment. In answer to these notices, the petitioners requested respondent No. 1 to furnish the reasons and the material in his possession for reopening the assessment. Respondent No. 1 failed to furnish any grounds in-spite of repeated reminders. The petitioners thereafter filed the present petition in this court on February 10, 1979, and it was duly admitted after notice was given to respondent No. 1.

Shri Khatri, the learned counsel appearing in support of the petition, submits that the action of respondent No. 1 in serving notice u/s 148 of the income tax Act, 1961, and not furnishing any reasons is totally illegal. The grievance of the petitioners deserves acceptance. It is not permissible for the income tax authorities to reopen the assessment without disclosing the material which has led them to the conclusion that there is a case of escaped assessment. In spite of service of notice on respondent No. 1 and the appearance through an advocate, a return has not been filed to challenge the averments made in the petition. In the absence of any material the action of respondent No. 1 in serving the notices u/s 148 of the said Act cannot be sustained.

There is one more feature of the matter which requires reference at this stage. Shri Khatri pointed out that, in spite of the grant of an interim stay to proceed with the impugned notices u/s 148 of the income tax Act, 1961, the income tax authorities served a fresh notice for the assessment year 1973-74 on March 20, 1978. In pursuance of this notice, proceedings were commenced by respondent No. 1 and ultimately it was found (by the AAC) on merits that the income has not escaped assessment in the assessment year 1973-74. The matter went right up to the Tribunal, and the Tribunal concurred with the finding (of the AAC) by order dated April 24, 1981. Shri Khatri submits that this fact also indicates that the impugned notices under the present proceedings were without any substance and were totally misconceived. I find considerable merit in this submission. In the absence of any material on record, it is impossible to sustain the impugned notices. Accordingly, the petition succeeds and the rule is made absolute in terms of prayer (a). In the circumstances lot the case, there will be no order as to costs.