Case Note & Summary
The Commissioner of Income Tax, Mumbai City III, filed an application under section 256(2) of the Income Tax Act, 1961, seeking a reference to the High Court against the order of the Income Tax Appellate Tribunal. The dispute pertained to the assessment year 1995-96. The respondent, The Maharashtra State Co-operative Bank Ltd., had filed its return which was processed under section 143(1)(a) and the claim for deduction under section 80P(2)(a)(i) was allowed. Subsequently, the assessing officer, relying on the Supreme Court judgment in Madhya Pradesh Co-op. Bank Ltd. v. CIT (218 ITR 438), issued a notice under section 148 on 16/1/1997, alleging that income had escaped assessment. The reassessment was completed under section 143(3) read with section 148 on 21/2/1997, disallowing the deduction claimed on interest received from government securities earmarked against statutory reserve fund. The respondent-assessee appealed to the Commissioner of Income Tax (Appeals), who directed the assessing officer to restrict the disallowance only to interest relatable to government securities forming part of reserve fund. Not satisfied, the assessee appealed to the Tribunal, which held that the reassessment notice was invalid because the assessing officer did not have a reasonable belief that income had escaped assessment; the notice was based merely on a change of opinion. The Revenue then applied under section 256(2) for a reference to the High Court. The High Court, after hearing the parties, dismissed the application, holding that the Tribunal's finding that the notice under section 148 was invalid was a finding of fact and no question of law arose. The court noted that the assessing officer had not formed an independent belief and had merely acted on the basis of a subsequent Supreme Court judgment, which did not constitute fresh material. The application was dismissed with no order as to costs.
Headnote
A) Income Tax - Reassessment - Section 148 - Validity of Notice - Reason to Believe - The assessing officer issued notice under section 148 based on a subsequent Supreme Court judgment, but the Tribunal held that the officer did not form an independent belief that income had escaped assessment. The High Court upheld the Tribunal's finding that the notice was invalid as it was based on a change of opinion and not on fresh material. (Paras 1-5) B) Income Tax - Deduction - Section 80P(2)(a)(i) - Co-operative Bank - Interest on Government Securities - The assessee, a co-operative bank, claimed deduction on interest from government securities earmarked against statutory reserve fund. The assessing officer disallowed the deduction, but the CIT(A) restricted the disallowance to interest relatable to securities forming part of reserve fund. The Tribunal held that the deduction was allowable. The High Court did not decide this issue as the reassessment itself was held invalid. (Paras 3-5)
Issue of Consideration
Whether the Income Tax Appellate Tribunal was correct in holding that the reassessment notice under section 148 was invalid because the assessing officer did not have a reasonable belief that income had escaped assessment, and whether the deduction under section 80P(2)(a)(i) on interest from government securities forming part of statutory reserve fund was allowable.
Final Decision
The High Court dismissed the application under section 256(2) of the Income Tax Act, 1961, holding that no question of law arose from the Tribunal's order. The Tribunal's finding that the reassessment notice under section 148 was invalid was a finding of fact. No order as to costs.
Law Points
- Section 256(2) Income Tax Act
- 1961
- Section 148 Income Tax Act
- Section 80P(2)(a)(i) Income Tax Act
- Reassessment notice validity
- Reason to believe
- Change of opinion
