TaxTMI 
TaxTMI 
1991 (3) TMI 32
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...., 1988, a search was conducted at the business premises of the said three partnership firms under section 132 of the Act. The residential premises of the partners, including the petitioner, were also searched and certain documents were seized. Summary assessments were made under sub-section (5) of section 132 holding that the partnerships concealed substantial income. Against the said orders, the petitioner says, representations were filed under sub-section (11) of section 132, which are pending now. While so, the second respondent, namely, the Assistant Commissioner of Income-tax, Investigation Circle 2(1), Agra, issued notices under section 148 for the assessment year 1983-84 on March 23, 1989, and for the assessment years 1984-85 to 1987-88 on March 9, 1989. In response to these notices, the petitioner filed returns under protest with respect to all the assessment years. Along with the returns, he submitted a letter of request to the second respondent to supply him a copy of the "reasons" recorded for initiating the said reassessment proceedings. He relied upon the decision of the Delhi High Court in New Bank of India Ltd. v. ITO [1982] 136 ITR 679 in support of his right to be ....
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.... that is, prior to the amendment of section 147 by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. In other words, the notices were issued under section 147 as it stood prior to April 1, 1989. According to the said provision, if the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of the assessee, inter alia, to disclose fully and truly all material facts necessary for his assessment for an assessment year, income chargeable to tax has escaped assessment for that year, he can reopen the assessment and make a reassessment subject to the provisions of sections 148 to 153. This power is also available where there is no omission or failure on the part of the assessee, but the Assessing Officer has reason to believe, in consequence of information in his possession, that income chargeable to tax has escaped assessment for an assessment year. Here again, he has to act in accordance with sections 148 to 153. Section 148, as it stood at the relevant time, provided that before making reassessment under section 147, the Assessing Officer shall serve on the assessee a notice containing the requisite particulars. Sub-secti....
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....eme Court by way of special leave. Hidayatullah J., after setting out the ingredients of section 237(b), made the following observations (at p. 661 of 36 Comp Cas) : "These grounds limit the jurisdiction of the Central Government. No jurisdiction outside the section which empowers the initiation of investigation, can be exercised. An action not based on circumstances suggesting an inference of the enumerated kind will not be valid. In other words, the enumeration of the inference which may be drawn from the circumstances postulates the absence of a general discretion to go on a fishing expedition to find evidence. No doubt the formation of opinion is subjective but the existence of circumstances relevant to the inference as the sine qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exist, the action might be exposed to interference unless the existence of the circumstances is made out. As my brother Shelat has put it trenchantly : 'It is not reasonable to say that the clause permitted the Government to say that it has formed the opinion on circumstances which, it....
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....rm an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute." We may point out that powers of this nature are conferred by any number of enactments. Not only taxing enactments, but several control orders made under section 3 of the Essential Commodities Act empower several officials to inspect, search and seize documents, commodities and other material, on their being subjectively satisfied that a violation has occurred. While the courts have repeatedly affirmed that formation of belief/satisfaction/opinion must be a fair and honest one based upon relevant material, it has not been held that material on the basis of which such belief/satisfaction/opinion is formed should be communicated even at that stage to the person concerned. As stated by the Supreme Court, the words "reasonable grounds to believe" have been considered "to be a restraint on administrative power just as compliance with the rules of natural justice on a quasi-judicial power." It is true that section 148(2) of the Income-tax Act expre....
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....is no difference between both the stages. On a consideration of the rival contentions, we are of the following opinion : Proceedings of the nature provided by section 147 of the Incometax Act have to be initiated on the concerned authority being satisfied subjectively that a certain violation of law has taken place ; in the case of section 147, it is escapement of income chargeable to tax for one or the other reasons mentioned in the section. As required by sub-section (2) of section 148, the Income-tax Officer has to record his reasons before issuing a notice under section 147/148(1). This is a statutory requirement. If reasons are not recorded as, required by law, the very action is rendered bad. See Collector of Monghyr v. Keshav Prasad Goenka, AIR 1962 SC 1694. But it is not necessary at this stage-unless required by law to do so-to communicate the reasons so recorded or to communicate the material on the basis of which the authority has formed the requisite satisfaction/belief. Section 148(2) requires the Assessing Officer to record his reasons before issuing a notice under section 148(1) as a measure of curbing arbitrary action. Once the officer is required to record reason....
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....ion 148(2) or that the reasons recorded are not relevant, he would become entitled to communication of the reasons so recorded. So far as the material/information on the basis of which reassessment proceedings are initiated is concerned, that would be put to the assessee if and when it is sought to be used against him. It is not necessary that all the material or information which is gathered or received by the Assessing Officer ought to be disclosed to the assessee. The obligation is only to disclose that material or information, as the case may be, which is sought to be used against the assessee. In this connection, we may also mention that courts generally discourage decision of a suit or proceeding in instalments. The normal policy of the courts is to insist that all the issues arising in a suit or proceeding should be decided at once, and not piecemeal. This means that all contentions of the assessee raised in response to a notice under section 148(1) should be decided at once, whether they are questions of law or of fact. We may now refer to the decided cases cited before us. In K. S. Rashid and Sons v. ITO [1964] 52 ITR 355, the Supreme Court considered a similar provision ....
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....ssee entitled to have a copy of those reasons ? Therefore, we do not see how Mr. Setalvad can suggest that no reasons had in fact been recorded, and so, the condition precedent prescribed by the proviso had not been complied with." This question was again raised in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC). The appeal to the Supreme Court was against the judgment of the High Court in a reference under section 66 of the 1922 Act. The question referred to the High Court related to the jurisdiction of the Income-tax Officer to initiate proceedings under section 34(1)(a) of the Act. The Supreme Court held, agreeing with the High Court, that the Income-tax Officer had jurisdiction to reopen the assessment in that case. Then, the Supreme Court proceeded to consider the argument relating to communication of the reasons recorded (pp. 222, 223) : "It was also contended for the appellant that the Income-tax Officer should have communicated to him the reasons which led him to initiate the proceedings under section 34 of the Act. It was stated that a request to this effect was made by the appellant to the Income-tax Officer, but the Income-tax Officer declined to disclose the reasons. In ....
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....ard of Direct Taxes [1976] 102 ITR 281. The appeal before the Supreme Court was against a decision of the High Court in a writ petition preferred against an order of transfer of assessment proceedings under section 127 of the Income-tax Act, 1961. Section 127 provides for transfer of assessment proceedings from one Income-tax Officer to another Income-tax Officer. The relevant portion of section 127(1) reads as follows: "(1) The Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from any Income-tax Officer or Income-tax Officers subordinate to him to any other Income-tax Officer or Income-tax Officers also subordinate to him and the Board may similarly transfer any case from any Income-tax Officer or Income-tax Officers to any other Income-tax Officer or Income-tax Officers : Provided that nothing in this sub-section shall be deemed to require any such opportunity to be given where the transfer is from any Income-tax Officer or Income-tax Officers to any other Income-tax Officer or Income-tax Officers and the offices of all such Income-....
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....Officer that there were no reasons for reopening the assessment. Such an opportunity is not available to an assessee under section 127(1) of the Act. The above decision is, therefore, clearly distinguishable." The relevant portion of section 127(1) reads: "The Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case . . ." In Thanthi Trust v. ITO [1973] 91 ITR 261, a Bench of the Madras High Court considered a similar argument. It opined that since the nature of the proceedings at the stage of recording of reasons is administrative in character, the requirement of communication does not apply, and that the assessee cannot compel the Income-tax Officer to disclose all the material which formed the basis of notice under section 148 before he filed his return in pursuance of the notice. Proceedings before the commencement of reassessment are only administrative in character. As matter of fact, courts have taken the uniform view that disclosure of the material at the stage of notice will be detrimental to the Revenue. The court, however, observe....
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....iction of having 'reason to believe' by the Income-tax Officer under section 147 . It would not be proper for the assessee without filing the return to ask this court to call for the reasons recorded by the Income-tax Officer. If the Supreme Court has held that reasons need not be furnished with the notice, the decision of the Supreme Court would be stultified if this court were nevertheless to call for the reasons recorded by the Income-tax Officer for the benefit of the assessee without the latter submitting the return. This would be virtually compelling the Income-tax Officer to disclose his reasons along with the notice issued under section 148(1), though according to the Supreme Court, this was not obligatory for the Income-tax Officer to do." We are inclined to agree with this reasoning. Learned counsel for the petitioner also placed reliance on the decision of the Supreme Court in Liberty Oil Mills v. Union of India AIR 1984 SC 1271. Clause 8B of the Imports (Control) Order, 1955, empowered the Central Government to keep in abeyance an application for licence or allotment of imported goods. The clause read as follows (at page 1282 of AIR 1984 SC): "8B. Power to keep in ab....
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.... allegations should be sufficient." (vide paragraph 22). Reliance was also placed upon the decision of the Supreme Court in R. B. Shreeram Durga Prasad v. Settlement Commission (IT and WT) [1989] 176 ITR 169. A special appeal was preferred against the judgment and order of the Settlement Commissioner constituted under the Incometax Act. The petitioner therein filed an application for settlement under section 245C. Objections were filed by the Commissioner to this application after perusing which the application for settlement was dismissed. The objections filed by the Commissioner were, however, not communicated to the petitioner and this was one of the objections raised before the Supreme Court as a violation of the principles of natural justice. The following observations in the judgment are relevant (at page 175) : "Reading the order, it appears to us, that though the appellant had made submissions on the Commissioner's objections there was no clear opportunity given to the appellant to make submissions on the Commissioner's objections in the sense to demonstrate that the commissioner was not justified in making the objections and, secondly, the Commission should not accept or....
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.... (i) While the recording of reasons as contemplated by sub-section (2) of section 148 is obligatory, the reasons so recorded need not be communicated to the assessee along with the notice under sub-section (1) of section 148. It is also not open to the assessee to straightaway call upon the Assessing Officer to disclose or communicate reasons to him, as soon as he receives the notice under section 148(1). He must first file his return or a revised return, as the case may be, and if he raises a contention either that no reasons were recorded or that the reasons recorded are not relevant and germane, then the Assessing Officer has to communicate the reasons to him. (ii) While communicating the reasons, it is open to the Assessing Officer to withhold the names of informants and/or identities of sources, if he thinks it necessary to protect his sources and informants. If and when, however, the matter comes before the court, the Assessing Officer is bound to disclose the entire reasons to the court and it is for the court to decide whether to recognise the Assessing Officer's claim to withhold the names/identities of informants/sources or not. (iii) So far as the material/information ....