1981 (12) TMI 61 - AT - Income Tax

Issues Involved:
1. Whether the assessment should have been completed under Section 147 instead of Section 144 of the Act on a protective basis.
2. Whether the case falls under Section 147(b) of the Act and not under Section 147(a).
3. Whether the assessee was obliged to file a return again under the second notice issued under Section 148.
4. Whether the assessee cooperated with the department during the assessment proceedings.
5. Whether the assessment order is valid given that the previous assessment was annulled by the AAC.

Issue-wise Detailed Analysis:

1. Assessment Under Section 147 vs. Section 144:
The assessee contended that the assessment should have been completed under Section 147 rather than Section 144 on a protective basis. The ITO initially framed an assessment on a protective basis, stating that the assessee did not have any known source of income to explain the investment in the property, implying that the investment was benami and actually belonged to her brother. The AAC annulled the assessment due to the lack of recorded reasons for initiating proceedings under Section 147(a). The ITO reinitiated proceedings under Section 147(a) with recorded reasons, but the assessee did not file a return, arguing that the case fell under Section 147(b). The ITO framed the assessment to the best of his judgment under Section 144.

2. Applicability of Section 147(a) vs. Section 147(b):
The assessee argued that the case should fall under Section 147(b) rather than Section 147(a). The ITO had initiated proceedings under Section 147(a) on the basis that the assessee had not filed a return for the assessment year 1970-71, leading to an escaped income of Rs. 25,000. The AAC set aside the assessment, directing the ITO to reframe it after allowing the assessee an opportunity to be heard, emphasizing the need for natural justice and fair play.

3. Obligation to File Return Under Second Notice:
The assessee filed a return of 'nil' income in response to the first notice under Section 148 but did not file a return in response to the second notice, arguing that the return had already been filed and the case fell under Section 147(b). The ITO framed the assessment under Section 144 due to non-compliance with the notice under Section 142(1). The AAC found that the assessee had the right to be confronted with the material in the possession of the ITO and set aside the assessment for a fresh hearing.

4. Cooperation with the Department:
The assessee maintained that she was present on the relevant dates and cooperated with the department. The ITO, however, framed the assessment under Section 144 due to the assessee's non-compliance with the notice under Section 142(1). The AAC observed that the assessee had the right to be confronted with the material and set aside the assessment, directing the ITO to reframe it after allowing the assessee an opportunity to be heard.

5. Validity of the Assessment Order:
The assessment order was based on the previous assessment, which had been annulled by the AAC. The ITO reinitiated proceedings under Section 147(a) with recorded reasons but refused to provide the reasons to the assessee. The Tribunal found that the refusal to provide reasons was sufficient for annulling the assessment, emphasizing the principles of natural justice. The Tribunal referred to various case laws, including Vimal Chandra Golecha vs. ITO, Ved Prakash Prabhudayal Agarwal vs. M.R. Patel, and CIT vs. Sham Lal, which supported the assessee's right to be informed of the reasons for reopening the assessment.

Conclusion:
The Tribunal allowed the assessee's appeal, concluding that the assessment was bad in law due to the ITO's refusal to provide the reasons for reopening the assessment, even upon request. The Tribunal emphasized the importance of natural justice and the assessee's right to be informed of the material and reasons for the assessment. The assessment was annulled, and the assessee's appeal was allowed.

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