2007 (9) TMI 219 - HC - Income Tax

Assessee contended that the action of the AO in issuing notice u/s 148 of the Act was not proper and valid because he had not recorded reasons and his satisfaction for issuing such notice - while issuing notice u/s 148(1) of the Act, AO must assign reasons held that the mandate of sections 147 and 148 of the Act have not been complied with and, therefore, the entire proceeding & consequential orders become void ab initio - action of AO is declared as illegal, arbitrary & unjustified

Summary

Issues Involved:
1. Imperative nature of assigning reasons for issuance of notice under section 148(2) of the Income-tax Act.
2. Compliance by the Income-tax Officer with the imperative provisions before issuance of notice.
3. Validity of the Tribunal's order in the absence of discussion regarding the reasons for issuance of notice.

Detailed Analysis:

Issue 1: Imperative Nature of Assigning Reasons for Issuance of Notice under Section 148(2) of the Income-tax Act
The court examined whether assigning reasons for the issuance of notice under section 148(2) is mandatory. It was emphasized that the jurisdiction of the Assessing Officer to assess or reassess under section 147(a) of the Act is contingent upon having "reason to believe" that the assessee failed to disclose all material facts necessary for assessment. Section 148(2) explicitly mandates that the Assessing Officer must record his reasons before issuing any notice.

Issue 2: Compliance by the Income-tax Officer with the Imperative Provisions Before Issuance of Notice
The court scrutinized whether the Assessing Officer complied with the mandatory provisions of section 148. It was found that the Assessing Officer issued the notice without recording reasons or informing the assessee about the reasons to believe that income chargeable to tax had escaped assessment. The court referenced the Supreme Court's ruling in GKN Driveshafts (India) Ltd. v. ITO, which clarified that the Assessing Officer must furnish reasons for issuing the notice and dispose of any objections by passing a speaking order. The court also cited the Patna High Court's decision in CIT v. Agarwalla Brothers, which held that the validity of the assumption of jurisdiction under section 147(a) must be tested by the reasons recorded under section 148(2). Failure to record reasons renders the entire process void ab initio.

Issue 3: Validity of the Tribunal's Order in the Absence of Discussion Regarding the Reasons for Issuance of Notice
The court noted that the Tribunal did not discuss whether the Assessing Officer had recorded reasons for issuing the notice under section 148. The Tribunal's statement of facts confirmed that the notice was issued without assigning reasons and that the assessee was not informed of the reasons despite requesting them. This omission was critical as it violated the mandatory requirements of sections 147 and 148, leading to the conclusion that the entire proceeding and consequential orders were void ab initio.

Conclusion
The court concluded that the Assessing Officer's failure to comply with the mandatory provisions of sections 147 and 148 by not recording reasons for the issuance of the notice rendered the entire proceeding and consequential orders void ab initio. Consequently, the action of the Assessing Officer was declared illegal, arbitrary, and unjustified. The questions referred were answered accordingly, emphasizing the necessity of adhering to procedural mandates in tax assessment proceedings.