TMI Blog1990 (8) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... counting year ending on December 31, 1961, the assessment of the assessee, namely, Agarwalla Brothers, had been completed on May 25, 1964, by determining a loss of Rs. 7,361. During the assessment proceedings as disclosed by the assessee, the Income-tax Officer noted that the assessee had started construction of four buildings during this year and an investment of Rs. 1,15,100 was shown during the year under assessment. While computing the income , he also assessed the rental income arising out of the said buildings. Subsequently, it appears that, on the basis of some complaints, enquiries were made in respect of the investments made in the constructions undertaken by the assessee and investments made therein in the year on hand as well as in subsequent years. According to the Inspector who enquired into the matter by visiting the buildings to ascertain the nature of the construction and went through the municipal records, the total investment made in the construction in all the years was Rs. 9,18,519 out of which, as per his estimate, the investment during the previous year relevant to the assessment year 1962-63 was to the extent of Rs. 7,79,805. This report of the Inspector wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,61,815. The assessee preferred an appeal before the Appellate Assistant Commissioner and assailed the order of assessment both on the ground of jurisdiction as well as the quantum of the income assessed. The Appellate Assistant Commissioner also negatived the contention raised in relation to jurisdiction but granted nominal relief in the quantum. Thereafter, both the assessee as well as the Department preferred appeals before the Income-tax Appellate Tribunal which was disposed of by a common order. Question No. 1 arises out of this order of the Tribunal. The Tribunal, while considering the validity of the proceedings and the consequential order of assessment, examined the necessary facts and held that, at the time of the original assessment, the assessee had filed balancesheets for the period ending December 31, 1960, as well as for the period ending December 31, 1961. The Tribunal, after perusing the records, recorded a finding that a copy of the accounts of Agarwalla Brothers showing the amounts of investments was also filed. The plan of the building and the remark that it was sanctioned on February 9, 1961, was also found on the records. The assessee, in a letter dated May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 147(a) of the Act, the Tribunal was to confine itself only to the recorded reasons and in case the recorded reasons fail to stand the test of "reasons to believe" within the meaning of section 147(a) of the Act as judicially laid down, then, whether the very initiation of the proceedings can be said to be ab initio void rendering all consequential actions including the order of reassessment as ineffective and non est. Section 147 of the Act authorises the Income-tax Officer to initiate proceedings in order to assess or reassess the income of any assessee provided the conditions contemplated under either of the two clauses of the said section can be shown to be in existence. In the present case, we are concerned with section 147 (a) of the Act which reads as under : "147(a). If the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ... he may, subject to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt in holding that the recording of the reasons is a pre-requisite to the assumption of jurisdiction by the Income-tax Officer for initiating the proceedings under section 147(a). The reasons so recorded acquire much significance when the action is taken under clause (a) of section 147 because it is only the recorded reasons which can indicate as to why the Income-tax Officer was made to believe that income has escaped assessment for the relevant assessment year. Further, the language employed in section 151 clearly leads to the conclusion that the Board or the Commissioner of Income-tax, while according sanction for issuance of notice under section 148 and for coming to an objective conclusion authorising the Income-tax Officer to take action under section 147(a), are required to confine themselves only to the reasons recorded by the Income-tax Officer. Therefore, looking at the entire scheme and purpose of the Act, I am of the considered view that the validity of the assumption of jurisdiction under section 147(a) can be tested only by reference to the reasons recorded under section 148(2) of the Act and the Income-tax Officer is not authorised to refer to any other reason eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 34(1)(a)." In Jamna Lal Kabra v. ITO [1968] 69 ITR 461 (All), it has been held at p. 464 that : To justify action by reference to clause (a) of section 147, it is not open to the Income-tax Officer, in my opinion, to refer to reasons other than those recorded by him pursuant to sub-section (2) of section 148. If the reasons recorded by the Income-tax Officer cannot lead to the conclusion that income chargeable to tax has escaped assessment for the relevant assessment year because of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for such assessment, the proceedings initiated by the Income-tax Officer by reference to that clause must be struck down as invalid. I may point out here that, in this judgment at page 464, it has also been said that sub-section (2) of section 148 requires the Income-tax Officer to record his reasons for issuing a notice under that section and it is necessarily envisaged that he will record all the reasons. The Calcutta High Court, in the case of H. A. Nanji and Co. v. ITO [1973] Tax LR 567, has dissented on this limited aspect by holding that section 148(2) merely requires that, before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " A Bench of the Calcutta High Court, by placing reliance on its earlier judgment in the case of East Coast Commercial Co. Ltd. v. ITO [1981] 128 ITR 326, held that, "it is true that section 148(2) of the Income-tax Act does not say that the Income-tax Officer shall record all the reasons which he had in his mind for reopening the assessment or for formation of his belief that income of the assessee had escaped assessment or has been under assessed on account of the assessee not having made full and true disclosure of his income but the section does not also say that the Income-tax Officer would record only some of the reasons and keep the others up his sleeves to be disclosed before the court if his action is ever challenged in a court of law. The recording of reasons, in our opinion, is not an idle formality but is a mandatory requirement of the statute casting a duty and obligation on the Income-tax Officer to record his reasons for issuing a notice for reopening an assessment and the Central Board of Direct Taxes or the Commissioner, as the case may be, being satisfied that it is a fit case for issue of such notice solely on the basis of the said reasons recorded, accords it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer, as quoted above, can be said to be legally relevant for conferring the jurisdiction on the Income-tax Officer. In the case of Johri Lal (HUF) v. CIT [1973] 88 ITR 439, 441, it has been held by the Supreme Court that: "The formation of the required opinion by the Income-tax Officer is a condition precedent. Without formation of such an opinion, he will not have jurisdiction to initiate proceedings under section 34(1)(a). The fulfilment of this condition is not a mere formality, but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings. As held by this court in Sheo Nath Singh v. AAC of I. T. [1971] 82 ITR 147, the Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief required by this section. It is true that the court will not go into the sufficiency of the reasons which persuaded the Income-tax Officer to initiate proceedings under section 34(1)(a) of the Act, but the court will examine the relevancy of the reasons which persuaded the Income-tax Officer to take proceedings under section 34(1)(a). The formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding under section 34(1)(a) is that 'the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee ... to disclose fully and truly all material facts necessary for his assessment for that year', income, profits or gains chargeable to income-tax have escaped assessment, etc. That condition must be fulfilled before the Income-tax Officer can take action under section 34(1)(a)." : See Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). Therefore, what the Tribunal had to consider was whether the assessee had fully and truly disclosed all material facts necessary for the assessment . . . In our opinion, in the circumstances of this case, the question whether the assessee had or had not failed to disclose fully and truly all material facts necessary for his assessment was a question of fact and we are unable to accept the argument of the learned advocate for the appellant to the contrary." At this stage, I may also refer to Calcutta Discount Co.'s case [1961] 41 ITR 191 (SC) for the purpose that, in this case, the assessee had challenged the issuance of reassessment notices under writ jurisdiction before the Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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