1973 (2) TMI 32 - HC - Income Tax

Reopening of income tax assessment under section 147(a): procedural recording of reasons is essential before reassessment can be validly invoked.

Reopening an income-tax assessment requires satisfaction of two condition precedent elements: a belief that income has escaped assessment and recording ... Validity of reopening the assessment u/s 147(a) - failure to disclose fully or truly all material facts - Satisfaction of escapement of income - Recording of Reasons for Notice - condition precedent of reopening assessment - Whether, the Appellate Tribunal was right in law in holding that the reopening of the assessment for 1955-56 u/s 147(a) of the Act was illegal, invalid and without jurisdiction and that the reassessment made by the Income-tax Officer including the sum in the assessable income of the assessee was bad in law ? - HELD THAT:- There cannot be any dispute that there is a clear distinction between jurisdiction and procedure, and that a defect in procedure will not normally amount to lack of jurisdiction. Section 147(a) sets out certain conditions for invoking the power and jurisdiction under that section. If those conditions are not satisfied, there is no jurisdiction for the Income-tax Officer to reassess under that section. Even if the conditions precedent set out in section 147(a) are treated as matters of procedure, still the contemplated procedure has to be followed for attracting the jurisdiction under that section. Therefore, the extreme contention of the revenue that even if the statutory procedure had not been followed still the order of reassessment has to be taken to be valid is not possible of acceptance. We cannot see the ultimate order passed under section 147(a) to find out whether the proper or relevant reasons existed at the stage of initiation of proceedings, when admittedly no relevant reasons had been recorded earlier as provided in the statute. We are of the view that the principle is by now well-established that the jurisdiction of the Income-tax Officer under section 147(a) could be invoked only when the above two conditions precedent are satisfied. If either of the conditions is not satisfied, the Income-tax Officer would have no jurisdiction to invoke section 147(a). In this case, though we have held that there is clearly a non-disclosure of income by the assessee, the first condition that the Income-tax Officer should have entertained a belief that income has escaped assessment has not been satisfied. It is true that in the reassessment order the Income-tax Officer refers to the existence of the belief. But, there are no materials to show that he entertained such a belief at the stage of the initiation of proceedings under section 147(a). We are, therefore, of the opinion that the reassessment in this case made under section 147(a) has to be treated to be one without jurisdiction and, cannot, therefore, be sustained. The question is, therefore, answered in the affirmative and against the revenue. Issues: Whether the reopening and reassessment of the assessment year 1955-56 under section 147(a) of the Income-tax Act, 1961 (by notice under section 148) was legal and within the jurisdiction of the Income-tax Officer.Analysis: The Court examined (i) whether there was non-disclosure by the assessee of material facts resulting in escapement of income for the assessment year 1955-56, and (ii) whether, independent of non-disclosure, the Income-tax Officer had recorded reasons at the stage of initiation (as required by section 148(2) and sanction procedure under section 151) sufficient to show that he entertained a belief that income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The Court held that the assessee failed to include the sum of Rs. 36,000 in her return for 1955-56 despite its accrual and hence there was non-disclosure and escapement of income. However, the Court also held that the only recorded reason at the initiation stage was the Commissioner's direction, and there was no contemporaneous recording showing that the Income-tax Officer entertained the requisite belief under section 147(a). The statutory requirement to record reasons relevant to the matters set out in section 147(a) was treated as a condition precedent to jurisdiction; absence of such relevant recorded reasons rendered the initiation of proceedings and consequent reassessment without jurisdiction.Conclusion: The reassessment under section 147(a) for the assessment year 1955-56 is without jurisdiction and therefore invalid; the revenue's challenge fails and the decision is in favour of the assessee.