TMI Blog1987 (9) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... ains were not chargeable to tax in India by virtue of article 6 of the Agreement for the Avoidance of Double Taxation between Indian and Malaysia. In the meanwhile, the Audit had looked into the files and it would transpire that it was considered that it was not proper to substitute the value as on 1-1-1964. Eventually, proceedings under section 147 were initiated and the ITO deducted in making the reassessment on 5-3-1985 the cost as on 31-12-1969. 2. The assessee appealed to the CIT (A) and contended that the reopening was not in order. But the CIT (A) decided against the assessee on the ground that the ITO had committed a mistake in adopting the cost as on 1-1-1964 when it would appear that the property was acquired only later. On merits, the CIT (A) held that it was true that the Tribunal had taken the view that capital gains in Malaysia could not be taxed in India, but he was of the view that were the decision of the Tribunal to be reversed the ITO would be left with no remedy and, therefore, while the reopening of the assessment was upheld, on merits, following the decision of the Tribunal which had been rendered by then in the original assessment, the CIT (A) deleted the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1986 from the ITO to Sr. A. R., ITAT, Madras. The final letter of the ITO dated 7-10-1986 to Sr. A. R. reads as under : "To the direct question as to whether the reasons for reopening the assessment u/s. 147(b) were recorded prior to issue of notice U/s. 148 the answer is submitted to be in the negative. However, it could be seen from the report dated 16-11-1983 submitted to the Commissioner of Income tax, Madurai in connection with an audit objection raised by Internal Audit Party and the memorandum in C. No. 739/1(2) /PDK/82-83 dated 6-3-1984 of the Inspecting Assistant Commissioner of Income Tax (Audit) that the Income-tax-Officer has applied his mind to this issue and after that the notice u/s 148 was issued. Kind attention is also invited to the Commissioner o Income-tax (Audit) Order dated 6-5-1985 wherein it has been clearly held that, the Income tax Officer misled himself or got misled into adopting the cost as on 1-1-1964, ignoring the fact that the properties were acquired subsequent and the cost figure as per books should have been adopted. It is clear from the original assessment order dated 17-3-1982 that the Income tax Officer was very clear about taxing the Capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm at the time of the partition in the family mode specified in section 49 the benefit of substituting the fair of value as on 1-1-1964 under section 55(2) for the cost of acquisition is available to the assessee. The draft assessment order together with the assessee's objections were forwarded to the Inspecting Asstt. Commissioner for instructions under sec. 144B. The Inspecting Asstt., Commissioner directed that the market value as on 01.01.1964 should be taken as the cost of acquisition and 70 per cent of the sale proceeds be taken as the market value as on 1-1-1964. The assessment was completed accordingly. Now Internal Audit Party has raised an objection. It has objected the adopting the market value as on 1-1-1964 at 70 per cent of the sale proceeds and suggested that the cost of properties which are the subject matter of discussion of the audit is tenable in view of the decisions of the Madras High Court in the case of CIT v. RM. K. P. L. Firm (124 ITR 340) wherein on similar facts it has been laid down that the cost of acquisition as recorded in books should be taken and section 55(2) is not applicable. The objection is also acceptable in view of the decision of Madras Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. After that, on 8-3-1984, the notice u/s., 148 was put up and subsequently on 12-3-1984, the ITO directed issue of another notice u/s. 148 since the first partner of the firm to whom the notice had been addressed had died. We have already held that, the letter of 16-11-1983 cannot be construed as recording of any reasons for initiating action under sec. 147 for issue of notice under sec. 148. Subsequent to the IAC's direction to initiate action under sec. 147(b), we only find that the directive was complied with. Complying with the directions of the IAC and issuing a notice under sec. 148 cannot be equated with the ITO fulfilling the mandatory requirement of recording his reasons for issuing the notice u/s. 148. The provisions of section 148(2) require a positive action of putting on record a statement of reasons by the ITO for issuing the notice u/s. 148. The silent assent in compliance with the directive of the IAC could not be fulfilment of the statutory requirement under sec. 148(2). Hence, on the facts, we have to hold that there was, in the present case, no recording of reasons by the ITO as to why he considered that notice u/s. 148 should be issued and the requirements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion will have to examine the reasons given by the Income-tax Officer and come to an independent decision and the authority in question should not act mechanically. From the material on record there is no basis to hold that, those requirements had been fulfilled. Possibly they could not have been fulfilled because, the Income Tax Officer proceeded only on the basis of section 34(1)(b) and not on the basis of section 34(1)(a). He himself had declined to proceed on the basis of section 34(1)(a) for whatever reason it may be. Therefore, it was not open to the Tribunal to justify the proceedings taken by the Income-tax Officer under section 34(1)(a). If the Tribunal converts the proceedings into one under section 34(1)(a), then the conditions prescribed in section 34(1)(a) cannot be satisfied." Under the Income tax Act, 1961, (there is no such express requirement under the Wealth-tax and Gift-tax Acts), it is expressly required by sec. 148(2) that the ITO shall, before issuing any notice under this section, record his reasons for doing so. In the present case, we have already found that, such reasons were not recorded by the ITO. The decision of the Supreme Court is authority for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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