1981 (4) TMI 142 - AT - Income Tax

Summary

Issues:
1. Validity of reassessment proceedings initiated by the ITO.
2. Compliance with the conditions precedent for initiating reassessment proceedings under section 147 of the IT Act, 1961.

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Jaipur involved the validity of reassessment proceedings initiated by the ITO for the assessment year 1971-72. The reassessment was based on the under-valuation of closing stock by the assessee during the original assessment, leading to an alleged escapement of income. The ITO learned about this under-valuation from an order of the AAC passed for the assessment year 1972-73, prompting the initiation of reassessment proceedings. The AAC, however, found that the ITO failed to satisfy himself that income had escaped assessment before commencing the reassessment, leading to the annulment of the reassessment by the AAC.

2. The crux of the issue revolved around whether the ITO had complied with the conditions precedent for initiating reassessment proceedings under section 147 of the IT Act, 1961. The Tribunal observed that a reasonable belief by the ITO that income had escaped assessment is a condition precedent for initiating reassessment proceedings. The ITO, in this case, issued the notice under section 148 based on an office note from the AAC, without independently verifying the escapement of income due to the under-valuation of closing stock. The Tribunal emphasized that the ITO must independently satisfy himself of the escapement of income before initiating reassessment proceedings, as directed by the AAC's office note did not substitute the ITO's obligation to form a reasonable belief. The Tribunal concluded that the reassessment was rightly annulled by the AAC due to the lack of satisfaction by the ITO regarding the escapement of income, which is a prerequisite for invoking proceedings under section 147 of the IT Act, 1961.

In conclusion, the Appellate Tribunal upheld the decision of the AAC and dismissed the appeal by the revenue, emphasizing the importance of the ITO's independent satisfaction regarding the escapement of income before initiating reassessment proceedings under the IT Act, 1961.