2006 (11) TMI 188 - HC - Income Tax

Tribunal accepted the appeal of the assessee on the ground that the Assessing Officer failed to record reasons for initiating proceedings for reassessment held that recording of reasons is a condition precedent to invoke jurisdiction under section 147/148 - Tribunal is right in law in annulling the assessment made by the Income-tax Officer - question referred to is answered against the Revenue

Summary

Issues:
Reopening of assessment based on escaped income due to lesser closing stock - Validity of assessment annulment by Income-tax Appellate Tribunal due to lack of recorded reasons by Assessing Officer.

Analysis:
The case involved a question of law referred to the High Court by the Income-tax Appellate Tribunal regarding the annulment of an assessment made by the Income-tax Officer. The original assessment was framed in 1981, and a notice for reassessment was issued due to income escaping assessment from lesser closing stock. The Commissioner of Income-tax (Appeals) upheld this view. However, the Tribunal accepted the appeal of the assessee, stating that the Assessing Officer failed to record reasons for initiating reassessment proceedings. The Tribunal emphasized that recording reasons is a prerequisite to invoke jurisdiction under sections 147/148 of the Income-tax Act, 1961, citing the Supreme Court judgment in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287.

The High Court, after hearing the counsel for the Revenue and examining the record, concurred with the Tribunal's decision. It noted that the Tribunal's decision aligned with the legal principles established by the Supreme Court and the High Court. The Court referenced several Supreme Court judgments, including Calcutta Discount Co. Ltd. v. ITO [1981] 41 ITR 191, Ganga Saran and Sony P. Ltd. v. ITO [1981]130 ITR 1 (SC), and Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC), which supported the requirement of recording reasons for reassessment. The Court also highlighted its own precedent in Swaraj Engine Ltd. v. Asst. CIT [2003] 260 ITR 202, emphasizing the necessity for specific, reliable, and relevant information to justify reassessment under section 147(a) read with section 148 of the Income-tax Act, 1961.

Furthermore, the Court referred to its recent judgment in Punjab State Co-operative Agricultural Development Bank Ltd. v. CIT [2008] 305 ITR 156, reinforcing the importance of recorded reasons for initiating reassessment proceedings. Ultimately, the High Court answered the question referred to it against the Revenue and in favor of the assessee, highlighting the significance of complying with the legal requirements for reassessment under the Income-tax Act, 1961.