2001 (8) TMI 27 - HC - Income Tax

Issues Involved:
1. Validity of assessment orders under section 16(4) of the Wealth-tax Act, 1957.
2. Requirement of recording reasons before issuing notices under section 17(1) of the Wealth-tax Act, 1957, for assessment years prior to April 1, 1989.

Detailed Analysis:

Issue 1: Validity of Assessment Orders Under Section 16(4) of the Wealth-tax Act, 1957

The appeals pertain to the assessment years 1981-82 to 1988-89. The Department, based on information indicating that the assessee possessed wealth that had escaped assessment, issued notices under section 17 of the Wealth-tax Act, 1957, to the legal heirs of the assessee on September 12, 1990. The assessee did not respond to these notices, leading to the issuance of a notice under section 16(2) of the Act, which was responded to by the authorized representative of the assessee. However, the assessee failed to comply with the requirement to file a wealth return, resulting in the completion of the assessment ex parte under section 16(4) of the Act.

The Commissioner of Income-tax (Appeals) (CIT(A)) held that the assessment orders were invalid and ab initio void because the notices under section 17 were issued without recording the reasons, a mandatory requirement as per the proviso to subsection (1) of section 17 of the Act. The Tribunal upheld this decision, leading to the Revenue's appeal to the High Court.

Issue 2: Requirement of Recording Reasons Before Issuing Notices Under Section 17(1) of the Wealth-tax Act, 1957

The Revenue contended that the Tribunal erred in holding that recording of reasons was a condition precedent even under the unamended provisions of section 17 of the Act, which did not require recording of reasons before issuing a notice prior to April 1, 1989. The appellant argued that the law applicable in the relevant assessment years (1981-82 to 1988-89) did not mandate recording reasons before issuing notices under section 17.

The High Court examined section 17(1) of the Wealth-tax Act and its proviso, which mandates that the Assessing Officer shall record his reasons before issuing any notice under this sub-section. This provision came into effect from April 1, 1989. The Court noted that the use of the word "shall" in the proviso makes recording of reasons mandatory. However, up to March 31, 1989, recording of reasons was not mandatory under the Wealth-tax Act.

The Court found that the notices under section 17 for the assessment years 1981-82 to 1988-89 were issued on September 12, 1990, and thus, the substituted provisions of section 17, effective from April 1, 1989, applied. The Tribunal and the CIT(A) correctly held that the issuance of notices without recording reasons rendered the assessments invalid and void ab initio.

The Court referred to the judgment of the Madras High Court in K. R. Venkatesalu v. WTO, which held that the amended provisions of section 17, effective from April 1, 1989, governed cases where notices were issued after this date.

Conclusion:

The High Court upheld the decisions of the CIT(A) and the Tribunal, confirming that the assessment orders under section 16(4) of the Act were invalid and void ab initio due to the lack of recorded reasons before issuing notices under section 17. Consequently, the appeals were dismissed, but the Court reserved the right of the Assessing Officer to take remedial measures as per the law.

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