JUDGMENT R.K. Agrawal and Rajes Kumar, JJ.
1. The income Tax Appellate Tribunal has referred the following question of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relating to the assessment year 1981-82 for opinion to this Court.
"1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT, was in law justified in rejecting the additional grounds challenging the validity of assessment order on the basis of illegal initiation of proceeding Under Section 148 without complying the provision of Section 148(2)?.
2. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was in law justified in holding that the amendment in the provision of Under Section 139(8), 215 and 217 instiled with effect from 1.4.85 world be applicable to assessment of earlier years completed after 1.4.75 and so charging of interest in case of assessee Under Section 138(8) as well as Under Section 217 is perfectly justified as the assessment Under Section 147 has been made for the first time after 1.4.85 and so it is a regular assessment.
3. Whether on the facts and in the circumstances of the case, the Hon'ble ITAR was in law justified in treating the assessment of the assessee as regular assessment within the meaning of Section 2(4) of the I.T. Act, 1961?"
2. The brief facts of the case are that for the assessment year under consideration, a notice under Section 148 of the Act dated 28th February, 1983 was served upon the assessee on 19th March, 1983. In pursuance thereof, return was filed on 10th September, 1984 declaring the total income as nil. The Income Tax Officer has completed the assessment on an income of Rs. 62,450/- vide order dated 19th April, 1986. In the order, interest under Section 139(8) and Section 217 was also demanded, Assessee filed appeal before the Appellate Assistant Commissioner of Income-tax, Moradabad which was partly allowed Assessee further filed appeal before the Tribunal. Before the Tribunal, the assessee moved an application for the addition of three grounds in the grounds of appeal which are reproduced as follows (1) The finding of the learned Income-tax Officer that the assessee's contention that the books are lost in fire, is untrue, is wrong and unjustified and based on imagination.
(2) That the order of the Income-tax Officer made Under Section 143(3)/ l48 dated 17.4.86 is bad in law, invalid and void as the proceedings Under Section 148 are wrong initiated without complying the provision of Section 148(2) and so assessment should be annulled.
(3) The learned Income-tax Officer is wrong and unjustified in charging interest Under Section 139(8) and Section 217 as the interest is not chargeable at all, because the assessments are not regular assessments Under Section 2(40), but completed Under Section (3)/148.
3. The assessee vehemently argued for admission of the first, the second as well as the third ground. In regard to the first ground, the plea was that the FIR as lodged by the assessee clearly goes to establish that the books were lost in fore and, therefore, this observation of the ITO that the books were not lost in fire was absolutely false and the observation should be deleted. As regards the second additional ground, the plea was that he had inspected the file and that there was no reasons recorded by the ITO prior to the issue of the notice Under Section 148. He pleaded that since the reasons need to be recorded prior to the issue of the notice, the requirement of Section 148(2) has not been complied with and, therefore, the proceedings arc invalid and void ab initio In regard to the charging of interest Under Section 139(8) and Section 217, his plea was that the assessment having been made Under Section 148 though for the first time, and being related to the assessment year 1980-81, the interest would not have been charged as this section was amended for inclusion of assessments made for the first time Under Section 148 only with effect from 1.4,1985. The DR on the additional grounds submitted that the assessee had merely raised these grounds without any basis. In regard to the first ground her plea was whether the books were lost in fire or otherwise the fundamental facts remains uncontroverted was that the hooks were not produced. The other plea raised was that in regard to the lack of jurisdiction of the Assessing Officer, the assessee had hot raised this issue before the CIT(A) nor has he placed the copy, of the reasons recorded which could perhaps indicate what was in the mind of the officer for invoking Section 148. The plea was the argument of me assessee in this regard has to be taken as a mere allegation without adducing of any evidence. In regard to charging of interest Under Section 139(8) reliance was placed on the Karnataka High court decision in the case of CIT v. Deepchand Kishanlal according to which the later legislative intend could and should be taken into account for proper appreciation of the legislative provision.
4. Tribunal has refused to permit the assessee to take the additional grounds.
5. We have heard Sri Vikram Gulati, learned counsel for the assessee and Sri R.K. Upadhyaya, learned Standing Counsel appearing on behalf of the Revenue.
6. So far as question Nos. 2 and 3 are concerned, the counsel for both the parties has very fairly conceded that both the aforesaid questions are covered by the decision of the Apex Court in the case of K. Goverdan and Sons v. Commissioner of Income Tax reported in 247 ITR, 192 against the assessee and in favour of the Revenue. The Apex Court held that the assessment made for the first time under Section 147 of the Act is a regular assessment and the Explanation-2 to Section 139(8) of the Act inserted w.e.f. 1.4.1985 is clarificatory and applicable to the earlier assessment year. Both the aforesaid questions are answered accordingly,
7. So far as question No. 1 is concerned, learned counsel for the assessee submitted that recording of reason is mandatory before issue of notice under Section 148 of the Act and in the absence of any reason being recorded, the notice under Section 148 of the Act stand invalid and the officer could not assume the jurisdiction to proceed. He submitted that in the present case, no reason has been recorded before issue of notice under Section 148 of the Act which the assessee has found from the perusal of the record and therefore, application has been moved for additional ground in this regard which the Tribunal has illegally refused to entertain. Me submitted that the issue involved relates to the jurisdiction of the officer to proceed with the case, which goes to the root of the case and hence the Tribunal ought to have allowed the application and permitted to add ground No. 2 referred hereinabove.
8. Learned Standing Counsel submitted that the validity of the proceedings have not been challenged by the assessee before the Assessing Authority as well as before the First Appellate Authority and, therefore, the Tribunal has rightly refused to entertain such plea.
9. Having heard the learned counsel for the parties, we are of the considered opinion that the Tribunal has illegally refused to entertain the plea relating to the lack of jurisdiction of the officer on the ground that no reason was recorded before issue of notice under Section 148(2) of the Act. The Tribunal has illegally rejected the additional plea on the ground that the assessee could have demanded a copy of the reason recorded and agitate(sic)n the assumption of jurisdiction.
10. In the case of P.V. Doshi v. Commissioner of Income-tax Gujarat, (1978) 113 ITR 22 (Guj), the Gujarat High Court has held as follows:
"The conditions precedent for initiating reassessment proceedings are ; [i) reasonable belief reached by the Income-tax Officer under clause (a) or clause (b) of Section 147(ii) recording of reasons by the Income-tax Officer under Section 148(2); (iii) sanction before issuing the notice of reassessment by the higher authorities under Section 151. These three conditions have been introduced by way of safeguards in public interest so that the finally concluded proceedings, which at the time of the original assessment could be reopened through the initial procedure of appeal, revision or rectification before the assessment became final, could not be lightly reopened with the consequent hardship to the assessee and also unnecessary waste of public time and money in such proceedings. These conditions have, therefore, to be treated as being mandatory. There could never be a waiver of a mandatory provision for the simple reasons that in such cases jurisdiction could not be conferred on the authority by mere consent, but only on conditions precedent for the exercise of jurisdiction being fulfilled. If jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar or res judicata being attracted because the order in such cases would lack inherent jurisdiction and would be a void order or a nullity. If an original order is without jurisdiction it would be a nullity confirmed in further appeals. The appellate order of the Tribunal thereon would also be a nullity and the Tribunal cannot confer any jurisdiction on the Income-tax Officer by making a remand order."
11. In the case of Commissioner of Income-tax, Gujarat II v. Kurban Hussain Ibrahimji Mithiborwala, , the Apex Court has held that it is well settled that the Income-tax Officer's jurisdiction to reopen an assessment under Section 31 of the Income-tax Act, 1922, depends upon the issuance of a valid notice if the notice issued by him is in valid for any reason the entire proceedings taken by him would become void for want of jurisdiction.
12. In the case of Commissioner of Income-tax, Gujarat II v. Nanalal Tribhovandas and Anr. , the Gujarat High Court has held that the validity of the notices under Section 34 goes to the very basis of the jurisdiction of the Income-tax Officer to entertain reassessment proceedings under Section 34, and in the absence of such notices, the Income-tax Officer has no jurisdiction to initiate reassessment proceedings. It is further held that if in fact the Income-tax Officer had no jurisdiction to initiate reassessment proceedings or to pass any order in reassessment proceedings, then the fact that this particular contention was not urged at an earlier stage was beside the point. Therefore, the Appellate Assistant Commissioner was competent to entertain the assessee's objection in regard to the validity of the notices under Section 34.
13. In the case of Inventors Industrial Corporation Ltd. v. Commissioner of Income-tax, , the Bombay High Court held as follows:-
"The provisions of Section 147(a) of the Income-tax Act, 1961, can be invoked only in a case where the Income tax Officer had reason to believe that, by reason of the omission or failure on the part of the assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly an material facts for the assessment for the year, income chargeable to tax had escaped assessment for that year. The information of belief by the Income Tax Officer to the effect that income of the assessee had escaped assessment is one of the conditions precedent for the assumption of jurisdiction to make reassessment. Assessment made under Section 148/143(3) without the valid formation of belief as to the escapement of income is void ab-initio or a nullity. A ground by which the jurisdiction to make assessment itself Is challenged can be urged before any authority for the first time. If it is found that the Income Tux Officer had no jurisdiction to make an order of reassessment, it is irrelevant that the jurisdiction of the Income Tax Officer to reassess was not challenged at any of the earlier stages. The Officer to initiate reassessment proceedings before the Appellate Assistant Commissioner in the second round of proceedings even though, he had not raised it earlier before the Income Tax Officer or in the earlier appeal, The powers of the first Appellate Authority, whether the Appellate Asstt. Commissioner or the Commissioner of Income Tax (Appeals), or conterminous with that of the Income lax Officer. The Appellate Authority has jurisdiction to entertain a ground regarding jurisdiction to make reassessment In an appeal following remand."
14. In the case of Johri Lal (HUF) v. Commissioner of Income-tax, U.P., , the Apex Court has held as follows:-
"The formation of required belief by the Income Tax Officer before proceedings can be validly initiated under Section 34(1)(a) is a condition precedent: The fulfillment of this condition is not a mere formality, it is mandatory, and failure to fulfill that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: The officer is further required to record his reasons for taking action under Section 34(1)(a) and obtain the sanction of the Central Board or the Commissioner, as the case may be."
15. In the case of Commissioner of Income-tax, Meerut v. Hari Raj Swamp & Sons, , this Court has held that if the initiations of the proceedings itself was not permissible in law, the connect given by the assessee to be assessed at a particular figure would not give jurisdiction to the ITO to make the assessment on that figure.
16. In the case of Baldev Singh Gyani v. Commissioner of Income-tax and Ors. , the Punjab & Haryana High Court has held that the requirement of recording of reasons enshrine in Section 148(2) of the Act is mandatory and since the record did not contain the reasons recorded by the Assessing Officer, the notice of reassessment proceedings had to be treated as a nullity and was liable to be quashed.
17. Thus. from the aforesaid decisions, it is well settle that the recourse to proceedings under Section 147 of the Act for reassessment can be assumed validly on fulfillment of certain conditions, namely, there should be reasonable belief that the income has escaped assessment, reasons has to be recorded in writing and valid notice has to be issued under Section 148 of the Act before making reassessment. If any of the condition mentioned above, is missing, the proceeding would be invalid and vitiated.
18. Further, it has been held that the plea with regard to the jurisdiction of the Officer goes into the root of the matter, therefore, even if not raised at the first instance before the Assessing Authority, it can be raised before the Appellate Authority at a later stage. In this view of the matter, we are of the opinion that the Tribunal has erred in not allowing the additional ground challenging the validity of the assessment order on the basis of illegal initiations of the proceedings under Section 148 of the Act.
19. In view of the reasons stated above, we answer the question No. 1 referred to us in the negative i. e. in favour of the assessee and against the Revenue and question Nos. 2 and 3 in favour of the revenue and against the assessee. However, there shall be no order as to costs.