Prior recorded reasons are mandatory before invoking penal reassessment powers; non-compliance vitiates the tax and penalty order.

Prior recorded reasons were mandatory before initiating proceedings under Section 35(7) of the JVAT Act, and that jurisdictional safeguard had to be met before reassessment could proceed. The High Court treated the requirement as especially strict because the provision is penal in character and can be invoked only on tangible material showing under-invoicing or sale at a higher price than reflected in invoices. As no recorded satisfaction before invocation was shown, the reassessment and consequent penalty under Section 40(1) could not be sustained. The tribunal order was therefore set aside and the matter remanded to the assessing authority for fresh consideration in accordance with law.

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Issues: Whether initiation of proceedings under Section 35(7) of the JVAT Act required prior recording of reasons and whether, in the absence of such recorded satisfaction, the reassessment and penalty sustained under Section 40(1) could stand.

Analysis: The proviso to Section 35(7) makes recording of reasons before initiation of proceedings mandatory and also requires an opportunity of hearing before any order is passed under that sub-section. The reassessment, though framed on the premise of underpricing and supported by reference to IBM rates, did not disclose that the assessing authority had recorded the requisite reasons before invoking Section 35(7). The Court treated such recorded satisfaction as a jurisdictional precondition, especially because the provision is penal in character and can be invoked only on tangible material showing that goods were sold at a price higher than that shown in the invoices. In the absence of compliance with this statutory condition, the subsequent levy of tax and penalty could not be sustained.

Conclusion: The requirement of prior recorded reasons under Section 35(7) was not satisfied, and the impugned reassessment and penalty could not be sustained on that basis.

Final Conclusion: The common tribunal order was set aside and the matter was remanded to the assessing authority for fresh consideration in accordance with law.

Ratio Decidendi: Where a taxing provision expressly makes recording of reasons a precondition for initiating proceedings, compliance with that requirement is mandatory and non-compliance vitiates the resulting reassessment and penalty.

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