TMI Blog2006 (4) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax was not obtained by the Assessing Officer? 3. Whether, on the facts and circumstances of the case, the Tribunal was right in holding the proceedings to be valid by holding that the service on the adult member of the family was a sufficient notice? 4. Whether, on the facts and circumstances of the case, the Tribunal was justified in holding the proceedings to be invalid on the ground that the period of less than 30 days was given to furnish the return of income despite the provisions of section 292B of the Act ?" 2 The facts as appear from the statement of the case are that for the assessment year 1990-91, the assessee has disclosed the sale of his residential house and claimed exemption from inclusion of the capital gains in its taxable income under section 54 of the Income-tax Act, 1961. At the foot computation of total income for the assessment year 1990-91, an explanatory note was appended by the assessee. 3 On the basis of the aforesaid information disclosed by the assessee himself that he has made certain investments in construction of his residential house on the land which he acquired in 1961 and the investment in the construction of house continued up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer had wrongly assumed the jurisdiction under section 147 because had he taken notice of the aforesaid facts, there would have been no material on the basis of which the Assessing Officer could have entertained a belief that income of the assessee of the previous assessment year relating to the assessment year 1984-85 had escaped assessment. Entertaining such a belief, is according to the assessee, the condition precedent before assuming jurisdiction by the Assessing Officer. 8 The explanation appended to the return in its fullness reads as under : "The assessee has during the previous year relevant to the assessment year sold his residential house situated, at 129, Ajeet Colony, Jodhpur, for a total consideration of P.s. 4,95,000 (which include Rs. 70,000 exclusively relating to sale of furniture and fittings like sofa set, fans, beds, electric fittings of appliances, etc.) to three parties. The cost of residential house was around Rs. 3 lakhs. The plot was acquired in 1961 for Rs. 2,000 and a very small construction was immediately raised and given on rent. Thereafter, time to time construction was carried out and by 1979 a full and complete house was built. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the present case was issued on January 15, 1993, which was beyond four years from the end of the assessment year 1984-85 and the extended period of limitation for initiating proceedings under section 147 applied and could have been initiated only on the satisfaction of the Income-tax Officer about the failure on the part of the assessee to disclose truly and fully all material facts relevant for the assessment of the assessee. 12 However, such satisfaction is a subjective one. So long as there is some material having nexus with formation of reason to believe, the satisfaction is not liable to be reviewed. Adequacy or sufficiency of material are not the grounds on which existence of belief can be questioned and examined. The Assessing Officer, the Commissioner of Income-tax (Appeals) and the Tribunal have found that omission of the aforesaid part of the explanatory note from the reproduction of the explanatory note, does not affect the holding of belief by the Income-tax Officer about the escapement of income of the assessment year 1984-85 from assessment. As a matter of fact they were of the opinion that it is apparent that even as per the note of the assessee, read in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion No. 2 Whether, on the facts and circumstances of the case, the Tribunal was right in holding the proceedings to be valid despite the fact that the approval of the Deputy Commissioner of Income-tax was not obtained by the Assessing Officer?" 16 About question No. 2 as we have noticed above that the notice under section 148 had been issued after the expiry of four years from the end of the relevant assessment year in respect of which, proceedings were to be initiated. As per the provisions of section 151 as they stood during the period notice under section 148 was issued, the Assessing Officer could not have initiated proceedings under section 148 unless the Deputy Commissioner (subsequently substituted as Joint Commissioner) was satisfied on is not basis of the reasons recorded by the Assessing Officer that it is a fit case for initiating proceedings. The assessee has contended that since the action of the Assessing Officer was not approved by the Deputy Commissioner (Joint Commissioner), the initiation of proceedings was invalid and for that reason also, the assessment founded on such ultra vires assumption of jurisdiction cannot be sustained. 17 Section 151 which ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons recorded by the Assessing Officer before such initiation Can take place by an officer. However, this condition is applicable only in case where the earlier assessment already exists. 19 On the other hand, sub-section (2) operates in the field, where there is no earlier assessment under section 143(3) or section 147. In such cases, the assessment proceedings are either to be initiated by the Deputy Commissioner in terms of section 147 read with sections 148 and 149 or if such proceedings are to be initiated by an officer who is below the rank of the Deputy Commissioner after the expiry of four years, then the satisfaction of the Deputy Commissioner that it is a fit case for issue of such notice, on the basis of the reasons recorded by the Assessing Officer before proceedings can be initiated. 20 This makes it clear that where no earlier assessment exists within four years, the Assessing Officer himself can initiate proceedings. If the assessment proceedings are to be initiated after four years, it has to follow the satisfaction of the Deputy Commissioner about the fulfilment of the conditions for initiating proceedings under section 147 unless the Deputy Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns recorded by the Assessing Officer and not de hors it. That is to say the satisfaction recorded by the Assessing Officer must be endorsed by the Deputy Commissioner, the Chief Commissioner the Commissioner, as the case may be, before the Assessing Officer assumes jurisdiction. Satisfaction independent of the reasons recorded by the Assessing Officer is not envisaged. This clearly indicates that foundation of initiating the proceedings is the reason to belief held by the Assessing Officer. Reasons for holding such belief are to be recorded in writing by the Assessing Officer. The satisfaction of the Deputy Commissioner or the Commissioner, as the case may be, has to be only about the fitness of the case to be subject to proceeding by reassessment under section 148 only on the basis Of the reasons recorded by the Assessing Officer. 22 Apparently, the assessee had raised the objection in relation to sub-section (2) of section 151. However, the Tribunal has reached this initial conclusion assuming that the case is governed by the proviso to sub-section (1) of section 151 which requires the satisfaction of the Commissioner or the Chief Commissioner to be obtained before initiating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer for which he has sought approval. That being the position, whether the case falls under sub-section (1) or sub-section (2) of section 151 conditions for initiating proceedings by the Assessing Officer below the rank of the Deputy Commissioner, have been shown to exist. If it is to be taken to be a case where no previous assessment under section 143 or section 147 exists, the satisfaction of the Deputy Commissioner on the basis of the reasons recorded by the Assessing Officer was sufficient for the purpose of initiating proceedings under section 147. The fact that it has also received the approval of the Commissioner would not invalidate the proceedings. In case the case of the assessee fell within the purview of sub-section (1) of on 151, there is no dispute about the fact that the Commissioner's approval for initiating proceedings under section 147 was obtained before initiating proceedings in terms of the proviso to sub-section (1) of section also. 26 In view thereof, the conclusion of the Tribunal that there is no violation of section 151 to vitiate the proceedings was correct. Accordingly, question No. 2 is answered in the affirmative, i.e., against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of service also to be completed before the expiry of the period of limitation prescribed under section 149. However, this controversy was settled by the Supreme Court in R. K. Upadhyaya v. Shanabhai P. Patel reported in [1987] 166 ITR 163 noticing the distinction between the requirement of sections 148 and 149. Section 148 requires the service of notice before making assessment/reassessment/recomputation under section 147, whereas section 149 requires issuance of notice before the expiry of the period of limitation for initiating proceedings. Noticing this distinction, the court held that what is needed under section 149 is that notice must be issued by the Assessing Officer before the expiry of the period of limitation provided under section 149. However, it may be served on the assessee even after the expiry of the period under section 149 but before the assessment/reassessment/recomputation under section 147. Thus, the service of notice now becomes part of the mere procedure and not a condition precedent for initiating proceedings. The service of notice before the expiry of the period of limitation does not become part of assuming jurisdiction and any defect in servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, the manner of service of notice becomes irrelevant. 30 In the present case, the assessee has filed the return in response to the notice served on his adult son calling upon him to file return and participated in the proceedings throughout, the service of notice on the individual himself being not a condition precedent for assuming jurisdiction nor a proper service before the expiry of the period of limitation before initiating proceedings being a condition precedent for initiating a valid proceeding under section 147 and the assessee having responded to notice betray that he has duly received summons served on his adult son. The service on the adult son of the assessee, who was residing with him has been rightly held to be proper by the Tribunal. 31 That being so, we answer question No. 3 also in the affirmative, in favour of the Revenue and against the assessee. "Question No. 4 : Whether, on the facts and circumstances of the case, the Tribunal was justified in holding the proceedings to be invalid on the ground that the period of less than 30 days was given to furnish the return of income despite the provisions of section 292B of the Act ?" 32 The last question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 148 in respect of specified period within which the return is to be submitted. 36 The principle is well-settled that where the proceedings are pending at any stage and law which is to be applied to the facts of the case is amended retrospectively, the same has to be noticed and given effect to which matter operates against the ordinary principle as the validity of a transaction has to be examined as on the date the transaction has taken place. 37 In CIT v. Straw Products Ltd. [1966] 60 ITR 156 (SC), the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, came to be amended with retrospective effect amended by the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1962. A reference was pending before the Supreme Court requiring to Order, 1949. The court held that it was the duty of the Supreme court to answer the reference in accordance with the amendment unless the question referred by the Appellate Tribunal was not couched in terms of sufficient amplitude to cover an inquiry in to the question in the light of the amendment. 38 In view of the aforesaid, we do not consider it necessary to go into the question whether speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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