1987 (4) TMI 5 - SC - Income Tax

Service of reassessment notice beyond the period of limitation - notice issued in prescribed period of limitation - validity of assessment - Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess

Summary

Issues:
1. Validity of notice for reassessment under section 147(b) of the Income-tax Act, 1961.
2. Interpretation of provisions in sections 148 and 149 of the Income-tax Act.
3. Jurisdiction based on service of notice within the prescribed period.
4. Application of precedent cases in determining the validity of notice.

Analysis:
The Supreme Court heard an appeal by the Revenue challenging the judgment of the Gujarat High Court, which had quashed a notice for reassessment issued under section 147(b) of the Income-tax Act, 1961. The High Court accepted the assessee's argument that the Income-tax Officer's action was time-barred. The notice was issued on March 31, 1970, and received by the assessee on April 3, 1970. The High Court relied on the decision in Banarsi Debi v. ITO, emphasizing the importance of service of notice within the prescribed period for jurisdiction.

The Supreme Court analyzed the provisions of sections 148 and 149 of the Act. It highlighted that under section 149, no notice under section 148 shall be issued after the expiry of four years from the end of the relevant assessment year. The Court emphasized that the issuance of notice within the limitation period is crucial for the Income-tax Officer to have jurisdiction to proceed with reassessment. The requirement of service of notice is a condition precedent to making the assessment order, not for conferring jurisdiction.

The Court distinguished the case at hand from Banarsi Debi v. ITO, stating that the 1961 Act clearly separates "issue of notice" and "service of notice." It clarified that once a notice is issued within the limitation period, jurisdiction is vested in the Income-tax Officer to proceed with reassessment. In this case, as the notice was issued within the prescribed period, the Income-tax Officer had the authority to complete the assessment. The Court allowed the appeal, vacated the High Court's order, and directed the Income-tax Officer to proceed with the assessment in compliance with the law.

In conclusion, the Supreme Court upheld the importance of issuing notice within the limitation period for jurisdiction in reassessment cases under the Income-tax Act, 1961. The Court clarified the distinction between "issue of notice" and "service of notice," emphasizing that the former establishes jurisdiction, while the latter is necessary for making the assessment order. The judgment serves as a precedent for understanding the procedural requirements for reassessment under the Act.