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Travancore Electro Chemical Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1989)31ITD159(Mum.)
AppellantTravancore Electro Chemical
Respondentincome-tax Officer
Excerpt:
.....that income chargeable to tax has escaped assessment. action under section 147(b). office please issue, notice under section 148. (2) the income-tax officer shall, before issuing any notice under this section, record his reasons for doing so as is evident on a plain reading of the section, it is mandatory upon the income-tax officer to record his reasons before, he issues a notice under section 148. the recording of reasons before the issue of such a notice is thus a mandatory requirement/to be fulfilled before issue of the notice by the income-tax officer. once it is established that this requirement/condition remained unfulfilled, the section stood infringed resulting in the notice issued being invalid.9. dealing with the contention of the departmental representative on the aspect.....
Judgment:
1. In this appeal filed by the assessee for the assessment year 1976-77, the primary challenge is that the reassessment order dated 20-9-1982 made under Section 147(b) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), confirmed by the Commissioner of Income-tax (Appeals) is invalid and opposed to the provisions of law.

2. The assessee is a company and is a manufacturer of calcium carbide.

The original assessment was completed on 12-9-1979 under Section 143(3) of the Act. By a notice dated 23-3-1981, under Section 148, the Income-tax Officer reopened this assessment on the ground that he had reason to believe that income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. He accordingly in pursuance of the said notice, initiated the reassessment proceedings and passed the impugned assessment order under Section 143(3) read with Section 147(b) of the Act.

3. On appeal, the Commissioner of Income-tax (Appeals) upheld the passing of the reassessment order on the ground that the reopening of the assessment under Section 147(b) of the Act was justified in view of the Tribunal's order dated 24-2-1981 for the assessment year 1975-76 in the assesse's very own case, wherein the disallowability of the extra shift allowance on electrical items of machinery had been upheld by the Tribunal and therefore this constituted "information" within the meaning of Section 147(b) and accordingly the reassessment under Section 147(b) was justified.

4. The present appeal is directed against this order. The learned Departmental Representative in pursuance to the direction given by the Bench of the Tribunal produced before us at the time of hearing the records of the case in original and also the file containing copy of the reasons recorded by the Income-tax Officer for reopening the assessment. Photostat copies of the notice under Section 148 dated 23-3-1981 and of the reasons recorded for reopening the assessment were given to us as well as to the counsel for the assessee.

5. At the outset, Mr. Dastur, the learned counsel for the assessee, pointed out to us that the reasons had been recorded on 24-3-1981 while the notice under Section 148 was dated 23-3-1981. He, therefore, strongly urged that the reasons had not been recorded prior to the issue of the notice, but were recorded later, i.e. a day later than the notice which was dated 23-3-'81. He, therefore, urged that the provisions of Section 148(2) of the Act stood violated and, therefore, the notice initiating the reassessment proceedings was invalid and consequently the reassessment order passed pursuant thereto was void being bad in law ought to be cancelled. Mr. Dastur further relied upon the decision of the Supreme Court in Union of India v. Rai Singh Deb Singh Bist [1973] 88 ITR 200 and another decision of the Supreme Court Johri Lal (HUF) v. CIT [1973] 88 ITR 439, for the proposition that the recording of reasons was an important condition to find out whether the Income-tax Officer had jurisdiction to proceed under Section 147.

6. The learned Departmental Representative, in reply, argued that no doubt the notice under Section 148 was dated 23-3-1981, but the same bore the seal of despatch as on 24-3-1981 and the same was posted on 25-3-1981 as seen from the postal notation on the acknowledgement slip and served upon the assessee on 26-3-1981 as shown by the same slip.

He, therefore, contended that the service of notice having been effected upon the assessee on a day later than 24-3-1981, it could not be said that the reasons for reopening the assessment did not stand recorded on the date when the notice was served upon the assessee or for that matter even before the notice left the precincts of the Income-tax Officer. In other words, the main plank of his argument was that when the notice was issued from the office and all the more when the assessee received the notice, the reasons stood already recorded the requirements of Section 148(2) stood satisfied and complied with.

He further submitted that in any case, the word "before" occurring in Section 148(2) should be construed in a liberal manner.

7. We have heard the parties and have also seen the original records ourselves. It is actually correct that the notice under Section 148 is dated and signed by the Income-tax Officer on 23-3-1981. The reasons for reopening the assessment have been recorded on 24-3-1981, a day later, but nonetheless later than the date of issue of notice. The reasons as recorded read: - 24-3-81 Please see item No. 11 of the SAP... ESA has, been allowed on electrical. It has been held by the Tribunal in very case that the electrical machineries do not form part of other machineries.

The E.S.A. allowed has to be withdrawn consequent on the information furnished by the SAP. I have reason to believe that income chargeable to tax has escaped assessment. Action Under Section 147(b). Office Please issue, Notice Under Section 148.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so As is evident on a plain reading of the section, it is mandatory upon the Income-tax Officer to record his reasons before, he issues a notice under Section 148. The recording of reasons before the issue of such a notice is thus a mandatory requirement/to be fulfilled before issue of the notice by the Income-tax Officer. Once it is established that this requirement/condition remained unfulfilled, the section stood infringed resulting in the notice issued being invalid.

9. Dealing with the contention of the Departmental Representative on the aspect that prior to the notice leasing the precincts of the Income-tax Officer and before the notice was served upon the assessee, the reasons already stood recorded, we are of the opinion that the date when the Income-tax Officer signed the notice, i.e. 23-3-1981, is the relevant date on which the notice is deemed to have been issued by him.

The date of posting of the notice is the date of performance of a Ministerial Act, following the issue of the notice by the Income-tax Officer. The date of performance of such Ministerial Act cannot therefore be equated to, or considered in our view as the date of issue of notice by the Income-tax Officer as envisaged by the provisions of Section 148(2) of the Act. The date of service of the notice upon the assessee cannot also be construed as the date of issue of the notice.

The term "issue" and "serve" under the Act are not synonymous for, it has been held by the Supreme Court now in the decision in R. K.Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163/33 Taxman 229 that under the Income-tax Act, 1961 a clear distinction has been made out between "issue of notice" and "service of notice". Therefore the fact that much prior to the actual date of service of notice the reasons had been recorded, cannot be considered as curing the informity which had already occurred. Therefore, since on 23-3-1981 when the notice under Section 148 had been issued by the Income-tax Officer there were no reasons which stood recorded such reasons having been recorded only on 24-3-1981, the position is that the case boils down to there being no recorded reasons existing for the belief of escapement of income found by the Income-tax Officer before the issue of notice under Section 148.

Where no recorded reasons exist prior to the issue of notice the assumption of jurisdiction for reopening is void and the decision of the Supreme Court in John Lal (HUF)'s case (supra) fully supports this view.

10. We, therefore, accordingly hold that since the requirements of Section 148(2) were not satisfied prior to the issue of the notice dated 23-3-1981 by the Income-tax Officer; the reassessment order dated 20-9-1982 is invalid and void ab initio. The same is hereby cancelled.

11. In the result, the order of the Commissioner of Income-tax (Appeals) is reversed on this point and the appeal of the assessee is allowed.

12. Since we have disposed of the appeal on the preliminary ground itself, we are not adjudicating upon the other grounds of appeal raised on the merits of the assessment.


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