Baldev Singh Giani v. Commissioner Of Income Tax And Others

G.S. Singhvi J.

1. In this petition filed under Article 226 of the Constitution of India, the petitioner has made the following substantive prayers:

"(b) issue a writ of certiorari quashing the impugned order (annexure P-10) ;

(c) issue a writ in the nature of mandamus restraining respondent No. 3 from proceeding further in the case of assessment of the petitioner till he supplies copies of reasons recorded under Section 148(2) of the Income Tax Act, in the case of the petitioner for the assessment year 1986-87 ;

(d) stay further proceedings in the case of assessment, reassessment of the petitioner for the assessment year 1986-87 ; . . ."

2. The facts relevant to the decision of the writ petition are that in response to the notice dated March 8, 1989, issued by the Income Tax Officer, Ward-2, Bhatinda (respondent No. 3), under Section 148 of the Income Tax Act, 1961 (for short, "the Act"), in relation to the assessment year 1986-87, the petitioner filed the return and declared a total income of Rs. 17,810 and a net agricultural income of Rs. 50,000. Respondent No. 3 did not accept the return and by an order dated July 17, 1991, passed under Section 143(3) of the Act, he made the assessment at an income of Rs. 20,21,850. The appeal filed by the petitioner was allowed by the Commissioner of Income Tax (Appeals) (for short, "the CIT (Appeals)"), on October 29, 1991, with a direction that a fresh assessment be made after giving an opportunity to him to adduce evidence in support of his claim. In compliance with the order of the Commissioner of Income Tax (Appeals), respondent No. 3 issued notices to the petitioner under Sections 142(1) and 143(2) of the Act and by an order dated March 30, 1994, he assessed the income of the petitioner at Rs. 12,59,980. The appeal filed against that order was partly allowed by the Commissioner of Income Tax (Appeals). The petitioner did not feel satisfied with the appellate order and, therefore, he challenged the same by filing an appeal before the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, "the Tribunal")). By an order dated February 28, 1997, the Tribunal directed the Commissioner of Income Tax (Appeals) to record a finding on the issue of compliance with Section 148(2) of the Act. The relevant extracts of the order passed by the Tribunal are reproduced below :

".... 3. In the first ground of appeal, Shri N.K. Sud, learned counsel for the assessee, challenged the initiation of proceedings under Section 147/148 of the Income Tax Act, 1961. He argued that merely because there were deposits in the name of the assessee and his relations, a reasonable inference could not be drawn that income had escaped assessment in the hands of the assessee on account of failure of the assessee to furnish material particulars. There was no nexus between the conclusion drawn and the material available on record. He accordingly argued that the reassessment proceedings initiated are bad in law. Shri Sud submitted that the Assessing Officer had not recorded any reasons as required under Sub-section (2) of Section 148 before issuing notice under Section 148. Shri Sud further submitted that it was imperative for the Assessing Officer to record reasons before assuming jurisdiction to assess/reassess the assessee.

3.1 The learned Departmental Representative opposed the above submission and argued that this point was not raised by the assessee before the Commissioner of Income Tax (Appeals).

3.2 On the directions of the Bench, the learned Departmental Representative produced the relevant record of assessment of the assessee and it was found that in the entry sheet dated March 8, 1989, the Income Tax Officer has stated issue notice under Section 148. No reasons are produced in the order sheet. The learned Departmental Representative, however, contended that there must be some other record in which the requisite reasons are recorded.

3.3 After considering the rival submissions of the parties, we are of the view that the point raised by Shri Sud goes to the root of the matter and pertains to jurisdiction. The records produced before us do not show recording of reasons as required under Section 148(2) of the Income Tax Act. However, this plea was not raised by the assessee before the Commissioner of Income Tax (Appeals) and his observations on the claim are not available and when the Departmental Representative says that the complete record is not with him, we deem it appropriate to set aside the impugned order and direct the Commissioner of Income Tax (Appeals) to record a finding on the claim made by the assessee. In case no reasons are found recorded, appropriate order is to be passed in the light of the decision of the Supreme Court in the case of K.L. Subhayya v. State of Karnataka : 1979CriLJ651 ; the Patna High Court in the case of Narang Brothers v. CIT : [1988]173ITR409(Patna) and the Bombay High Court in the case of Nargis M. Baldiwala v. M.N. Sawant, Second ITO : [1990]185ITR143(Bom) and the proceedings are to be quashed."

3. The Tribunal then proceeded to examine the other grounds and allowed the appeal for statistical purposes.

4. In terms of the direction given by the Tribunal, the Commissioner of Income Tax (Appeals) was required to decide whether or not the competent authority had recorded reasons before issuing notice under Section 148(2) of the Act, but instead of doing that, the Commissioner of Income Tax (Appeals) vide his order dated March 27, 1998, set aside the assessment as a whole and remitted the case to respondent No. 3 to complete the assessment as per law keeping in view the guidelines laid down by the Tribunal. Thereafter, the petitioner submitted the application dated December 17, 1999, to respondent No. 3 in which he made the following prayer :

"Hence, I hereby again humbly request to your goodself to supply the copy of reasons which were made basis to initiate the reassessment proceedings in my case under reference. I would certainly like to adduce necessary evidence and explanation in respect of each item and transaction which is connected with me in any manner provided the copy of reasons is supplied in advance. You arc also hereby requested not to summon the concerned/connected persons till the above legal mandatory requirement is fulfilled by the Department. Similarly, I may also be not summoned till the above request is accepted."

5. On receipt of the said application, respondent No. 3 passed the following order on December 17, 1999 :

"Present: Shri A.K. Mangal, advocate for the assessee, filed a written submission dated December 17, 1999. As his request made cannot be acceded to because the reasons to initiate reassessment proceedings are not available on records at present, but the then Assessing Officer, Shri R. S. Jain, was summoned and he categorically stated in his report dated November 26, 1999, that reasons were duly recorded at one time for all the four assessment years, i.e., 1985-86 to 1988-89. Therefore, you are requested to substantiate the return of income along with necessary evidence as already called for vide this office letter dated October 28, 1999."

6. In the meanwhile, respondent No. 3 vide letter dated November 5, 1999, called upon the then Income Tax Officer, Ward-2, Bhatinda, Shri R.S. Jain to clarify whether he had recorded reasons before initiating proceedings for reassessment. In his reply (annexure P-7), Shri Jain asserted that the notices for the assessment years 1985-86, 1986-87, 1987-88 and 1988-89 were issued after recording of reasons, but the paper on which reasons were recorded in relation to the assessment year 1986-87 is not available in the record of the Department. On having come to know about the communication sent by Shri R.S. Jain, the petitioner filed the objection petition dated January 17, 2000, and requested respondent No. 3 to decide the matter in accordance with the direction given by the Tribunal. He also filed an application under Section 144A of the Act before the Joint Commissioner of Income Tax, Bhatinda Range, Bhatinda (respondent No. 2), with the prayer that respondent No. 3 may be directed to drop the proceedings because reasons allegedly recorded by the then Assessing Officer were not available in the file. That application was rejected by respondent No. 2 vide order annexure P-10 with the following observations :

"I have gone through the petition of the assessee under Section 144A dated January 24, 2000, and I have also gone through the report of the Assessing Officer, Ward-2, Bhatinda, on the application under Section 144A filed by Shri Baldev Singh Giani, H. No. 2642, Court Road, Bhatinda. As per the report of Shri R.S. Jain, the then Assessing Officer, Ward-2, Bhatinda, who had recorded the reasons for reopening of the assessments in this case for the assessment years 1985-86 and 1987-88, has stated that he recorded the reasons for reopening of the assessments in the above case and notices under Section 148 of the Act were issued on March 8, 1989, for the assessment years 1985-86 to 1987-88 after earmarking respective concealment in this case. However, in the assessment year 1986-87, reasons recorded are not available on the record. The dispute regarding the availability of recorded reasons arose only at the level of the Tribunal while there was no dispute to the reasons recorded in writing at the appellate stage before the learned Commissioner of Income Tax (Appeals), Bhatinda. In the totality of the circumstances, it is found that the Department had recorded the reasons for opening of the case under Section 148 for the assessment year 1986-87 before issuing notice under Section 148 of the Act, but these are not readily available. Therefore, keeping in view the petition of the assessee as well as report of the Assessing Officer, it will be advisable to proceed under Section 148 for the Assessing Officer and the asses-see is accordingly requested to co-operate with the Assessing Officer in the proceedings under Section 148 of the Act."

7. The petitioner has challenged the initiation of proceedings for reassessment primarily on the ground that the notice under Section 148 of the Act issued by respondent No. 3 is ultra vires Sub-section (2) thereof. He has averred that reassessment proceedings could not have been initiated without recording reasons in terms of Section 148 and communication thereof to him. He has also challenged the order passed by respondent No. 2 on the ground that in view of the direction given by the Tribunal, the said respondent cannot authorise respondent No. 3 to undertake a fresh exercise by presuming that reasons must have been recorded by the then Assessing Officer.

8. The respondents have relied on the letter dated November 26, 1999, written by Shri R.S. Jain to show that before issuing notice under Section 148 of the Act, he had recorded reasons. According to them, non-availability of the reasons on the record cannot be made the basis for quashing of the proceedings of reassessment.

9. Shri A.K. Mittal, counsel for the petitioner, referred to the direction given by the Tribunal and argued that respondents Nos. 2 and 3 are not empowered to travel beyond the parameters laid down in the remand order and the exercise undertaken by respondent No. 3 to procure the letter from Shri R.S. Jain as well as the contents of that letter should be ignored for the purpose of determining the legality of the decision of respondent No. 3 to initiate reassessment proceedings. In support of this argument, Shri Mittal relied on the decision of the Madras High Court in Raja D.V. Seetharamayya Bahadur v. Sixth WTO : [1995]213ITR502(Mad) . He then argued that Section 148(2) is mandatory in nature and failure of the Assessing Officer to record reasons and communicate the same to the petitioner should be treated as sufficient to vitiate the order annexure P-10 passed by respondent No. 2 and the refusal of respondent No. 3 to drop the proceedings of reassessment should be declared illegal.

10. Shri R.P. Sawhney, senior counsel for the Revenue, strongly relied on the letter of Shri R.S. Jain and argued that the assertion made by him can be relied upon for showing that reassessment proceedings were initiated after complying with Section 148(2) of the Act. Shri Sawhney submitted that recording of reasons by Shri Jain for issuing notice in relation to the assessment years 1985-86, 1987-88 and 1988-89 makes his version about recording of similar reasons in relation to the assessment year 1986-87 highly credible and respondent No. 2 has rightly directed respondent No. 3 to proceed under Section 148 of the Act. Learned counsel then argued that the Tribunal should not have entertained the plea raised on behalf of the petitioner about the violation of Section 148(2) of the Act because no such plea had been raised before respondent No. 3 and the Commissioner of Income Tax (Appeals).

11. We have thoughtfully considered the respective submissions. In our opinion, the initiation of reassessment proceedings by respondent No. 3 and the direction given by respondent No. 2 to the said respondent to continue with the said proceedings are vitiated by patent error of law and deserve to be quashed. At the cost of repetition, we may mention that while allowing the appeal filed by the petitioner against the order dated March 24, 1995, passed by the Commissioner of Income Tax (Appeals), the Tribunal had directed the Commissioner of Income Tax (Appeals) to record a finding on the petitioners plea that initiation of reassessment proceedings was contrary to Section 148(2) of the Act and observed that if the reasons are not found recorded, appropriate order be passed in the light of the decisions of the Supreme Court, Patna High Court and Bombay High Court and the proceedings be quashed. That order acquired finality because the Revenue did not challenge the same by seeking reference under Section 256 of the Act or otherwise. Therefore, the Commissioner of Income Tax (Appeals) and respondents Nos. 2 and 3 were bound to confine their consideration to the question as to whether the file available with the Department contained reasons recorded by the Assessing Officer and such reasons were communicated to the petitioner. However, instead of doing that, the Commissioner of Income Tax (Appeals) remanded the case to respondent No. 3 and by procuring letter dated November 26, 1999, from Shri R.S. Jain, the said respondent tried to create evidence to show that the reasons had been recorded by the then Assessing Officer but the papers containing those reasons are not available and in this manner, he travelled beyond the parameters laid down by the Tribunal. In our opinion, respondent No. 3 was bound to act within the four corners of the order passed by the Tribunal and he did not have the jurisdiction to create fresh evidence on the issue of recording of reasons and communication thereof.

12. In Raja D.V. Seetharamayya Bahadur v. Sixth WTO : [1995]213ITR502(Mad) , a similar question was considered and answered in the following words (page 507) :

"The appellate orders for the years 1970-71 and 1972-73 had only directed the Assessing Officer to go into the question as to the extent of the land owned by the assessee at No. 64, Luz Church Road, Mylapore, Madras-4, exclude therefrom the extent of the lands that had been settled by deeds dated March 25, 1970, on his daughters and include in the total net wealth of the assessee, the remaining portion of the land only. There is no direction in any other appellate order in relation to the property in the city of Madras. The appellate order in relation to the years 1970-71 to 1972-73 directs assessment to be redone. The appellate order for 1974-75 and 1975-76 follows this order. The appellate order for 1973-74, however, directs the officer to make a fresh assessment in the manner stated in the said order. The question requiring consideration of this court is whether these directions empower the Assessing Officer to reopen the entire assessment and even revalue properties not ordered to be revalued by the appellate authority. Considering the finality attached to an assessment order and the Assessing Officer having become functus officio in relation thereto, this court is of the view that the jurisdiction of the Assessing Officer has to be found in the remand order itself and the officer cannot ignore or act contrary to or in excess of the said order."

13. We respectfully agree with the view expressed by the Madras High Court and hold that respondents Nos. 2 and 3 were bound by the direction given by the Tribunal and they had to confine their consideration to the issue whether the assessing authority had recorded the reasons and the same were communicated to the assessee.

14. The argument of Shri Sawhney that the letter dated November 26, 1999, written by Shri R.S. Jain should be treated as sufficient to raise a presumption about the recording of reasons sounds attractive but cannot be accepted because the requirement of recording of reasons enshrined in Section 148(2) of the Act is mandatory and the communication of such reasons has been treated as a necessary concomitant of the duty to record reasons--Sohan Lal Singhania v. ITO : [1992]194ITR519(All) ; Herbs (India) Pvt. Ltd. v. Deputy CIT : [1992]198ITR554(All) and K.M. Bansal v. CIT : [1992]195ITR247(All) . The reasons recorded by the authority concerned give an indication of the direction in which its mind is operating and without knowing the reasons, the assessee cannot effectively contest the notice. Therefore, we cannot uphold the initiation of reassessment proceedings by presuming that the assessing authority must have recorded the reasons and the same must have been communicated to the petitioner. The record relating to the assessment was in the possession of the assessing authority and as the said record does not contain the reasons recorded by the assessing authority, the notice issued by respondent No. 3 will have to be treated as nullity. As a logical corollary to this conclusion, we hold that the direction given by respondent No. 2 for continuing the proceedings of reassessment despite the fact that the record does not contain the reasons recorded by the assessing authority is liable to be declared illegal and quashed.

15. The argument of learned counsel for the Revenue suggesting that the direction given by the Tribunal vide order dated February 28, 1997, should be treated as erroneous cannot be accepted for the simple reason that the Department did not challenge the order passed by the Tribunal by availing of appropriate legal remedy and the same has become final.

16. For the reasons mentioned above, the writ petition is allowed. Order annexure P-10 is declared illegal and quashed and respondent No. 3 is restrained from proceeding further in the case of reassessment till copy of the reasons recorded under Section 148(2) of the Act in relation to the assessment year 1986-87 is supplied to the petitioner.